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Natural Gas Weekly Update
Natural Gas Weekly Update Text
Released: October 30, 2008
Next Release: November 6, 2008
Overview (For the week ending Wednesday, October 29)

  • Natural gas spot prices in the Lower 48 States decreased from Wednesday to Wednesday, October 22-29, with relatively large declines of more than 10 percent occurring in markets west of the Mississippi River and more modest price movements in the eastern half of the country. During the report week, the Henry Hub spot price decreased by $0.36 per million Btu (MMBtu) to $6.58.

  • At the New York Mercantile Exchange (NYMEX), futures prices decreased for the report week. The futures contract for November delivery, for which the final day of trading was yesterday (October 29), decreased by 31 cents per MMBtu on the week to $6.469. During its tenure as the near-month contract, the November contract lost 75 cents per MMBtu, or about 10 percent of its value.

  • As of Friday, October 24, working gas in underground storage was 3,393 billion cubic feet (Bcf), which is 2.9 percent above the 5-year (2003-2007) average. The implied net injection during the week ending October 24 was 46 Bcf.

  • The price of West Texas Intermediate (WTI) crude oil increased on the week by 53 cents per barrel to $67.45, or $11.63 per MMBtu. After decreasing to its lowest level in 17 months (below $62 per barrel) early in the week, the WTI price gained more than $5 per barrel yesterday.

NYMEX Natural Gas Futures Near-Month Contract Settlement Price, West Texas Intermediate Crude Oil Spot Price, and Henry Hub Natural Gas Spot Price Graph

More Summary Data

Spot natural gas prices at trading locations across the country tumbled this week amid concerns over the economy, which may limit demand, and a perception of a healthy outlook for supplies this winter. Even though production losses of about 2.5 Bcf per day from hurricane-related damages offshore Gulf of Mexico continue (now bringing the estimated total lost supply from hurricanes to more than 280 Bcf) and a cold front has moved into the Northeast, prices fell as underground storage levels indicate a healthy supply picture for heating demand this winter and an economic downturn likely would limit industrial demand in the near term. The Henry Hub price declined 36 cents per MMBtu to $6.58 on the week, or 5.2 percent. On a regional basis, spot markets along the Gulf Coast in Louisiana decreased an average of $0.39 per MMBtu, or 5.7 percent. Price movements in these market areas were less volatile than elsewhere, as the hurricane-related production outages in the offshore likely supported local prices.

Further to the west, week-to-week price declines were considerably larger, even in areas where price levels were already considerably lower. Large percentage declines occurred in several regions such as the Midcontinent, West Texas, and Rocky Mountains as the result of mild weather and already-abundant storage levels and supplies. The largest regional week-to-week percentage decline occurred in West Texas, where the regional price decreased 12.5 percent to $3.95, or approximately 60 percent of the Henry Hub price. November bidweek prices in West Texas and a number of other western trading locations suggest that low prices of under $3 per MMBtu may continue at many locations. For example, at the Opal, Wyoming, trading location in the Rockies, the average bidweek price through Wednesday, October 29, was $2.72 per MMBtu. Bidweek trading continues through Friday, October 31.

Temperatures during this report week fell below normal in the Northeast as the season’s first major cold front moved across the region, likely boosting heating demand and supporting prices. In the Northeast, the regional average price was $7.51 per MMBtu, which was 13 cents lower than the previous week but still the highest regional price in the Lower 48 States. Several points in the region posted gains on the week. For delivery in Zone 5 (the Mid-Atlantic region) off Transcontinental Gas Pipe Line, the price gained 9 cents per MMBtu to $7.42.

The volume of deliveries of liquefied natural gas (LNG) imports remains below 1 Bcf per day. LNG imports appear to be on course to set a new 5-year low in 2008. For October, deliveries will likely average about 0.9 Bcf per day, about 43 percent of the average of 2.1 Bcf for 2007. LNG cargos with flexible delivery terms on the spot market are heading to Europe and Asia, where buyers continue to purchase LNG at prices higher than those that have prevailed in U.S. markets.

Spot Prices

At the NYMEX, the price of the near-month contract (for November delivery) decreased $0.308 per MMBtu during the report week to a final closing price of $6.469. This decline is attributed chiefly to concerns over the state of the economy and higher-than-average levels of natural gas in underground storage. The November contract recorded a 13-percent decrease in price level in comparison with the October contract, which expired at $7.472 per MMBtu. Downward price pressure appeared related to an improved domestic production outlook, limited demand by electric power generators during the month, and movements in the crude oil price, which decreased by about $33 per barrel since the beginning of the month. At the end of trading yesterday, the 12-month strip, which is the average for futures contracts over the next 12 months, was priced at $7.09 per MMBtu, a decrease of about $0.10 since last Wednesday.

Wellhead Prices Annual Energy Review
More Price Data

Working gas in storage totaled 3,393 Bcf as of Friday, October 24, 2008, according to EIA’s Weekly Natural Gas Storage Report (see Storage Figure). The implied net injection during the week ending October 24 was 46 Bcf, which slightly exceeded the 5-year average injection of 42 Bcf but was significantly smaller than last year’s injection of 66 Bcf. As a result, current inventories are now above the 5-year average level by an estimated 97 Bcf or 2.9 percent, while they trail last year’s levels by 97 Bcf, or 2.8 percent. With 1 week remaining before the start of the traditional heating season, storage inventories likely will enter the withdrawal season above 3,400 Bcf, despite significant volumes of natural gas shut-in this year because of damage caused by the recent hurricanes. During the week ending October 23, about 22 Bcf of potential supplies was shut-in in the Federal offshore Gulf of Mexico and in the onshore and State waters of Louisiana because of hurricane damage.

The above-average net injection came during a week of colder-than-normal temperatures across the Lower 48 States, with the exception of the Mountain and Pacific Census Divisions. As indicated by National Weather Service degree-day data, the number of heating-degree-days totaled 13 percent above normal for the country as a whole, which likely increased space heating requirements. Cold temperatures were concentrated in populous regions of the country such as New England and the Middle Atlantic, where degree days were 32 percent above normal. In general, temperatures were slightly below levels typical for late October with an average overall temperature for the week of 53.6 degrees Fahrenheit, about 1.5 degrees below normal (see Temperature Maps and Data).

Storage Table

More Storage Data
Other Market Trends

NEB Issues a Report on Canadian Natural Gas Deliverability: On October 23 Canada’s National Energy Board (NEB) released a report, Shale and Tight Gas Prospects Improve Canadian Natural Gas Deliverability Outlook, which indicates that conventional natural gas production is expected to decline by about 7 percent by 2010. However, the report notes that the development of shale and tight gas prospects in northeast Canada could offset the decline of natural gas conventional production. With advances in technology, natural gas in shale and tight formations has become more accessible. While this development is still in early stages, it could change previous projections, which called for a decline in production from the Western Canadian Sedimentary Basin (WCSB). This is particularly important since about 98 percent of Canada’s natural gas production comes from the WCSB, according to the NEB. Although the potential supplies of natural gas from Canada remain high, the development of these energy resources continues to depend on the natural gas markets located across North America. Natural gas prices in western Canada would need to be approximately between $6 and $7 (U.S. dollars) per MMBtu in order to maintain or advance current drilling levels.

EIA Releases the 2005 Residential Consumption and Expenditures Tables. On October 22 the Energy Information Administration (EIA) released the residential consumption and expenditure tables of the 2005 Residential Energy Consumption Survey (RECS). RECS is a national area-probability sample survey that collects energy-related data for occupied primary housing units. Included in the survey are data collected from 4,381 households statistically selected to represent the 111.1 million housing units in the United States. Data were obtained from residential energy suppliers for each unit in the sample to produce the consumption and expenditures data. Included in these 15 tables are tabulations for total energy consumption and expenditures, average consumption and expenditures, energy intensity statistics, and unit prices.

MMS Receives More Than $500 Million in Gulf of Mexico RIK Gas Sale. The Minerals Management Service (MMS) reported on October 27 that this month’s natural gas sale resulted in about $537 million in gross revenue. About 76 Bcf of natural gas, or 241,000 MMBtu per day, was sold in 5- or 12-month contracts with delivery scheduled to begin November 1, 2008. The 76 Bcf of natural gas is enough to supply the average gas needs of nearly 1 million U.S. homes for 1 year. The Gulf of Mexico sale is part of a royalty in kind (RIK) program in which the gas sold involves an aggregation of royalties taken “in kind” in the form of product rather than “in value” or cash payments from gas producers in the Gulf. MMS then sells the gas competitively on the market with the goals of increasing revenues, improving Government efficiencies, and shortening the compliance cycle. Winning bidder companies included ConocoPhillips Company, Shell Energy North America, United Energy Trading LLC, and J.P. Morgan Chase. The approximately 76 Bcf of gas sold during this sale is based on average volumes of gas produced prior to Hurricane Ike. Actual volumes sold may vary as the natural gas that was shut-in because of the hurricane is restored to production and delivered to market centers.

Natural Gas Transportation Update

  • As a result of a cold front moving though the company’s market area, Northern Natural Gas declared a system overrun limitation (SOL) on October 26, 2008, for all market area zones. The company initially set the SOL for gas days Sunday and Monday. However, at the time of this writing the constraint had not been removed.

  • Texas Eastern Transmission Corporation reported a capacity reduction at its Kosciusko, Mississippi, compressor station as a result of an unplanned outage that occurred there on Thursday, October 23. As a result of the outage, no gas is flowing between the Clinton and Kosciusko stations. Furthermore, the current capacity at Kosciusko is 550,000 decatherms (Dth) per day and the reduced capacity is expected to remain in place through Friday, October 31.

  • ANR Pipeline Company began engine maintenance on its Sulphur Springs Compressor Station in Indiana, located on the Southeast Central Fuel Segment (ML-3). The engine maintenance is expected to be completed by the end of the gas day October 30, and it resulted in a total capacity reduction at the ANR Glen Karn, Ohio, interconnect into the Lebanon System to 343 MMcf per day. Based on nominations at the Glen Karn interconnect (the beginning of the Lebanon System), the pipeline expects that this reduction may affect firm secondary and interruptible transportation service nominations.

  • As a result of high linepack and forecasts of high temperatures in its service area, Mississippi River Transmission Corporation issued a system protection warning (SPW) effective Thursday morning, October 30. As a result of this SPW, the pipeline will not schedule any interruptible or secondary firm service transportation volumes to points south of Glendale, Arkansas. The SPW will remain in effect until further notice.

  • Northwest Pipeline reported on October 27 that it has reduced capacity at the Pleasant View compressor station in Colorado in order to make necessary repairs and complete its investigative work. The capacity through the station will be reduced to 329,000 Dth per day through November 3, and it will be shut down on November 4 and 5. Following the work, the Pleasant View compressor station will return to its design capacity of 352,446 Dth per day.

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.