for week ending October 1, 2008 | Release date: October 2, 2008 | Previous weeks
Overview | Prices | Storage | Other Market Trends | Natural Gas Transportation Update |
Natural gas spot prices decreased at virtually all market locations following last week’s increases in the aftermath of Hurricane Ike. The likely driver of the recent decreases is the lack of significant demand as all areas of the country, with the exception of the desert Southwest and inland California, experienced mild temperatures. The natural gas spot prices, along with both natural gas and crude oil prices in the futures market, decreased significantly on the week. On the week, the Henry Hub spot price declined 74 cents per MMBtu, or 9 percent, to $7.41 per MMBtu. Other price locations in Louisiana recorded decreases between 51 and 89 cents, reaching a regional average of $7.35 per MMBtu. Price declines for the week prevailed in other producing regions along the Gulf Coast, with Alabama/Mississippi falling 55 cents, followed by South and East Texas with declines of 42 and 31 cents, respectively. The price decreases in these regions reflect the return of gas supplies from the offshore and onshore production areas. Reported shut-in production in the Federal offshore Gulf of Mexico and in Louisiana (onshore and in State waters) were about 48 and 44 percent, respectively, of the pre-hurricane production levels.
In the Northeast, where mild temperatures prevailed for much of the past week, spot prices decreased by an average of 51 cents per MMBtu since last Wednesday. As of yesterday, the Northeast traded at a regional average of $7.75 per MMBtu, remaining below the $8 mark throughout the report week. The price of natural gas at Transcontinental’s New York Zone 6 was $7.85 per MMBtu, decreasing 45 cents since the previous Wednesday.
Spot prices in the Rockies also recorded a net weekly decrease, despite the sizeable increases in prices during Monday’s trading at most points in the region, which followed the return of the Rockies Express Pipeline’s (REX) flows in the area. REX began accepting nominations at its ANR Pipeline interconnect in Kansas and the Panhandle Eastern interconnect in Missouri during the report week, after nearly a month-long section outage for hydrostatic testing. The increases recorded on Monday in the Rockies averaged 68 cents per MMBtu; however, on the week, the price in the region fell by 67 cents to $4.22 per MMBtu.
At the NYMEX, the October 2008 futures contract closed on September 26 at $7.472 per MMBtu, reaching the lowest near-month closing price since last December. During its tenure as the near-month, the October 2008 contract recorded a net decrease of $0.580 or 7.2 percent, consistently trading below $8 since August 29.
The price of the new near-month contract fell this week, settling 18 cents, or about 2 percent, lower than last Wednesday’s price of $7.908 per MMBtu. During its first day of trading as the near-month contract (Monday, September 29), the price of the November 2008 futures fell to $7.221 per MMBtu, recording the lowest price for a near-month contract since December 27, 2007. However, the price of the contract rebounded somewhat since then, ending the report week at $7.728 per MMBtu. The overall decreasing prices reflect expectations in the natural gas market influenced by the higher-than-average natural gas volume in underground storage, lack of additional tropical storms that could threaten further the production region in the Gulf of Mexico, as well as the significant decreases in crude oil prices that have occurred in the past 2 weeks. However, the uncertainty related to the financial markets and their possible impact on macroeconomic factors could negatively impact natural gas prices in the future.
Working gas in storage increased to 3,110 Bcf as of Friday, September 26, according to EIA’s Weekly Natural Gas Storage Report (see Storage Figure). The implied net injection of 87 Bcf into working gas was 21 percent higher than the 5-year average net injection of 72 Bcf, and was also about 40 percent higher than last year’s net injection of 62 Bcf for the same report week. The net injections exceeded the 5-year average in all regions in the Lower 48 States. Despite the continued shut-ins in the offshore Gulf of Mexico, the largest differential to the 5-year average net injection occurred in the Producing Region, where the latest net injection exceeded the average by 41 percent. This occurred amid reports that as of September 26, seven major natural gas pipelines in the Gulf Coast reported complete shut-ins of their systems and seven natural gas processing plants were offline with a combined capacity of 4.7 Bcf per day, according to the Department of Energy.
According to the latest report, the current volume of natural gas in storage in the East Region reached 1,855 Bcf, which matches last year’s level for the first time this year. The report indicated a 51-Bcf injection in the East Region, which is the largest regional net weekly injection in September since 2006. The West and Producing Regions remain below last year’s level, but have seen the differentials from last year’s levels decrease to 8 and 129 Bcf, respectively. The differential in the West Region’s storage volume peaked at 77 Bcf for the week ended May 23, 2008, while the Producing Region differential reached the highest level at 187 Bcf for the week ended August 8, 2008.
Temperatures across the Lower 48 States were moderate, limiting the demand for natural gas and contributing to the large net injection into underground storage. The National Weather Service’s degree-day data (see Temperature Maps and Data) indicate that temperatures in the Lower 48 States were within a few degrees Fahrenheit of normal levels in all Census Divisions for the week roughly coinciding with the storage report.
Trends in Natural Gas Drilling. Rotary rigs drilling for natural gas reached 1,559 for the week of September 26, 2008. The natural gas rig count for the week was about 8 percent more than the level at the same time last year. Natural gas rigs have increased steadily from the 1,401 reported on January 18, 2008. The number of natural gas rigs drilling for the week ended August 29 reached a high of 1,606, which is the highest number of natural gas rigs in the more than 21 years since the drilling rigs data have been provided by fuel type (July 1987). Two weeks later (for the week ended September 19), natural gas rigs drilling again reached 1,606, making up about 79 percent of the total U.S. rigs drilled. The average number of natural gas rigs drilling so far this year is about 1,494 rigs, which is about 1.6 percent higher than the aggregate recorded for the same time period in 2007.
See Weekly Natural Gas Storage Report for additional Natural Gas Storage Data.
See Natural Gas Analysis for additional Natural Gas Reports and Articles.
See Short-Term Energy Outlook for additional Natural Gas Prices, Supply, and Demand.