for week ending October 8, 2008 | Release date: October 9, 2008 | Previous weeks
Overview | Prices | Storage | Other Market Trends | Natural Gas Transportation Update |
Spot natural gas prices moved lower this week at trading locations across the Lower 48 States, as fear of a slowing economy and turmoil on Wall Street affected the entire energy industry. Current instability in the banking sector is expected to have a variety of longer-term effects on the natural gas industry (including access to credit). This would considerably dampen demand for energy in all consuming sectors, but particularly affect demand in the industrial sector (where natural gas is the primary fuel for close to 40 percent of energy consumption). As concerns over the economy evolved this week, the price at the Henry Hub in Erath, Louisiana, fell to its lowest point since November 9, 2007, averaging $6.58 per MMBtu yesterday. On the week, the Henry Hub price was 83 cents per MMBtu lower, or about 11 percent less than on the previous Wednesday. On a regional basis, spot markets along the Gulf Coast in Louisiana and East Texas registered an average price decrease of $0.82 and $0.78 per MMBtu, respectively.
In addition to concerns over the economy possibly limiting demand, many of the supply-side factors that contributed to the decline in prices this summer remain firmly in place. Recent price decreases have been related to an improved outlook for domestic production. According to the September edition of EIA’s Natural Gas Monthly, domestic production has increased 8.5 percent during the first 7 months of 2008 in comparison with the same time period in 2007. The percentage growth for the year-to-date volumes likely will decline as data are reported for the months affected by Hurricanes Gustav and Ike. In fact, severe reductions in supplies from the Gulf of Mexico offshore continue with the Minerals Management Service (MMS) reporting that 2.9 Bcf per day of production remains shut-in in the Federal Gulf of Mexico as of October 8. Nonetheless, most of the shut-in production is expected to return in the near term.
The lowest regional prices on the week occurred again in the Midcontinent region, where the average price fell 84 cents per MMBtu to $3.19. Available Midcontinent supplies were abundant during the week as regional storage facilities are reported to be nearly full and pipelines have been experiencing inordinately high levels of linepack. Price decreases were widespread in the region, with the largest ($1.74 per MMBtu) occurring for supplies on Northern Natural Gas for delivery in Clifton, Kansas. The price for deliveries to Panhandle Eastern Pipe Line in the Midcontinent region during trading yesterday (Wednesday) was reported to be $2.85. Prices in the Rocky Mountains region also were weak with a maximum price of only $2.83 per MMBtu for spot trading in the producing areas (excluding the import border crossings and the Stanfield interconnection between Oregon and Washington).
At the NYMEX, the price of the near-month contract (for November delivery) decreased $0.986 per MMBtu during the report week to $6.742. This decline also is likely related to concerns over the economy and growing supplies in storage. The daily closing price decreased each trading day during the report week. The near-month contract is now priced at about half of the peak price of $13.58 for the near-term contract this summer (reached on July 3 for trading of the August 2008 contract). Relative to the past 2 years, the current contract price for November is about 10 cents per MMBtu below the November 2007 contract price of $6.85 at this time last year but 31 cents higher than the November 2006 contract.
The average futures contract price for the upcoming heating season (November 2008 through March 2009) decreased $0.88 per MMBtu on the week to $7.20. This price is $0.62 per MMBtu more than yesterday’s Henry Hub spot price, suggesting an economic incentive to inject natural gas into storage. Beyond March 2009, prices for contracts through the end of the 12-month futures strip (November 2008—October 2009) decreased but at smaller increments ranging between 66 cents and 72 cents per MMBtu. The 12-month strip settled yesterday at $7.39 per MMBtu, which is 76 cents lower than last week.
Working gas in storage increased to 3,198 Bcf as of Friday, October 3, 2008, according to EIA’s Weekly Natural Gas Storage Report (see Storage Figure). This report week’s implied net injection of 88 Bcf is higher than both the 5-year average injection of 69 Bcf and last year’s injection of 68 Bcf. As a result, current inventories are now 2.2 percent above the 5-year average level of 3,129 Bcf. The difference between current inventories and levels last year at this time decreased to 3.5 percent, or 117 Bcf. The net injection came during a week in which about 26 Bcf of supplies were reported shut-in in the Federal waters of the Gulf of Mexico and in Louisiana in the aftermath of Hurricanes Gustav and Ike. Reduced demand related to moderate temperatures on a widespread basis at least partially offset the effects of the large volume of supplies that were shut-in during the week, allowing for the substantial build in storage.
This week’s injection partly reflects moderate temperatures across the United States, which kept demand for heating and cooling needs low. For the week ending October 2, 2008, temperatures were slightly warmer-than-normal. However, the absence of substantial amounts of heating or cooling degree-days for the week ending October 2 indicate minimal weather-related load for the country as a whole. (see Temperature Maps and Data)
EIA Releases Its Winter Fuels Outlook. Average household expenditures for all space-heating fuels are projected to be $1,137 this winter (October 1 to March 31), a 15-percent increase over the estimated $986 spent last winter, according to EIA’s Short-Term Energy and Winter Fuels Outlook released on October 7. The largest increases, 18 percent, will be in households using natural gas. About 52 percent of all households nationwide depend on natural gas as their primary heating fuel. The projected expenditure increases primarily reflect higher prices, although colder weather than last winter also is expected to contribute to higher fuel use in many areas. However, fuel expenditures for individual households are highly dependent on market size, the size and energy efficiency of individual homes and their heating equipment, and thermostat settings. Households heating primarily with natural gas are expected to spend an average of $155 (18 percent) more this winter compared with the 2007-2008 winter season. The increase in natural gas expenditures reflects the combined effects of a 17-percent increase in price and a 1-percent increase in consumption. Overall this winter, total residential consumption of natural gas in the United States is expected to increase by 3.5 percent year-over-year based on the projected 2.4-percent increase in heating degree-days. In addition to weather, worsening economic conditions add significant uncertainty to the forecast, particularly for the industrial sector. In annual terms, consumption in the industrial sector is expected to increase by 1.0 percent in 2008 and 1.1 percent in 2009. Total U.S. marketed natural gas production is expected to increase by 6.7 percent in 2008 and by 4.2 percent in 2009. The Henry Hub spot price averaged $7.88 per thousand cubic feet (Mcf) in September, $0.62 per Mcf below the average spot price in August. Despite hurricane damage to supply infrastructure in the Federal Gulf of Mexico, the recent decline in prices was the result of demand loss associated with these same hurricanes, moderate temperatures, lower oil prices, and uncertainties about future economic growth. On an annual basis, the Henry Hub spot price is expected to average about $9.67 per Mcf in 2008 and $8.17 per Mcf in 2009, compared with $7.17 per Mcf in 2007.
EIA Releases Report on U.S. Peak Storage Capacity. The Energy Information Administration (EIA) has released a special report titled Estimates of Peak Underground Working Gas Storage Capacity in the United States, which provides national and regional updates to estimates of total natural gas storage capacity as of mid-2008. The estimates for the national and regional peak capacity are based on the maximum reported working gas volumes for individual active facilities from January 2003 through May 2008. According to the report, peak working gas storage capacity nationwide rose by 86 Bcf from the previous year’s level to 3,789 Bcf in mid-2008 and was the equivalent of 92 percent of working gas capacity. The increase in estimated peak storage capacity is attributable to capacity at new facilities, expansions at previously built facilities, and greater use of already existing storage facilities during the past year. Regional peak capacity values range from a low of 490 Bcf in the West Region to a high of 2,153 Bcf in the East Region. The estimated peak working gas capacity is 96.8 percent of working gas capacity in the East Region and 91.6 percent in the Producing Region. The relative magnitude of estimated peak capacity in the West Region is 74.2 percent of working gas capacity. The lower average use of working gas capacity in the West is due to a number of still-active fields that have shifted their primary role from seasonal storage to other functions, such as pipeline load balancing, and to fields that are being drawn down to be taken out of service.
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.