• Natural gas spot prices fell at most market locations in the Lower 48 States this report week, as seasonably moderate temperatures minimized natural gas demand in many areas of the country. The return of some Gulf of Mexico supplies during the week provided further downward pressure on spot prices. As of yesterday, October 1, the Minerals Management Service (MMS) reported that 3.5 billion cubic feet (Bcf) per day of natural gas production remains shut-in, 16 percent lower than the 4.2 Bcf per day reported 1 week earlier.



• The Henry Hub spot price fell in the first three trading sessions of the report week, reaching $7.13 per million British thermal units (MMBtu). However, the spot price rebounded in Tuesday’s and Wednesday’s trading, finishing the week at $7.41 per MMBtu.



• At the New York Mercantile Exchange (NYMEX), futures prices for the near-month (October) contract closed at $7.472 per MMBtu on September 26, recording a $0.580 net decrease during its tenure as the near-month contract and reaching the lowest closing price of a near-month contract since the January 2008 futures contract closed at $7.172 per MMBtu.



• Natural gas in storage reached 3,110 Bcf as of Friday, September 26, following a net injection of 87 Bcf, leaving current natural gas stocks 1.6 percent above the 5-year (2003-2007) average.



• The average West Texas Intermediate (WTI) crude oil price decreased $8.61 per barrel on the week to $98.23 per barrel or $16.94 per MMBtu yesterday.

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.

• As of October 1, five major pipeline companies still reported no gas flow from offshore points in the aftermath of Hurricanes Ike and Gustav. These pipelines are: Stingray Pipeline Company; High Island Offshore System, LLC; Black Marlin Pipeline Company; Discovery Gas Transmission, LLC; and the UTOS Enbridge Offshore Pipeline, LLC. During this period of supply disruptions, DOE has been providing regular updates on the status of energy infrastructure in the DOE Situation Report. Damage assessments and repairs continue to be performed at both onshore and offshore facilities. The pipelines continue to provide updates to their customers on those points along the systems that were affected and are now approved to flow gas based on line integrity tests.



• The DOE Situation Report states that 5 of the 39 major natural gas processing plants in the paths of Hurricanes Gustav and Ike remain shut down for repairs. These plants have a combined capacity of 3.2 Bcf per day. Separately, five plants are capable of restarting but are currently inactive until power is restored and/or upstream gas flow is sufficient.



• Rockies Express Pipeline, LLC (REX), has ended its major outage for hydrostatic testing of a portion of its mainline, which had significantly reduced flows on the pipeline during September. According to postings by REX, deliveries to ANR Pipeline Company and Panhandle Eastern Pipe Line Company in Missouri were available by Monday, September 29. The testing, which required all natural gas to be removed from a segment of the pipeline and replaced with water, was conducted between the Steele City Compressor Station in Gage County, Nebraska, and the Turney Compressor Station in Clinton County, Missouri.



• On Tuesday, September 30, Colorado Interstate Gas Company lifted a variety of restrictions for injection of natural gas into underground storage on its system. The restrictions, contained in a Strained Operating Conditions (SOC) declaration, had been implemented on September 3 as a result of storage inventories nearing the upper limit of reservoir guidelines for this time of year.

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.