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Natural Gas Weekly Update

Natural Gas Weekly Update Text
Released: November 20, 2008
Next Release: December 4, 2008
Overview (For the week ending Wednesday, November 19, 2008)

  • Wintry weather moved into major population centers in the Lower 48 States this report week, boosting demand related to space heating from the Midcontinent to the eastern half of the country. Prices increased throughout the country, with the biggest increases in the Midcontinent. During the report week, the Henry Hub spot price increased $0.11 per million Btu (MMBtu) to $6.76.

  • At the New York Mercantile Exchange (NYMEX), futures prices also increased for the report week as the second week of the heating season began. The futures contract for December delivery increased by 34 cents per MMBtu on the week to $6.74.

  • As of Friday, November 14, working gas in underground storage was 3,488 billion cubic feet (Bcf), which is 4.2 percent above the 5-year (2003-2007) average.

  • The price of West Texas Intermediate (WTI) crude oil decreased on the week by $2.31 per barrel to $53.64, or $9.25 per MMBtu. This is the lowest price for WTI crude oil since January 2007.

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

A major weather front from the north entered the Midwest and the East this week, bringing the coldest temperatures of the season to date. Increased space-heating demand in consuming regions led to gains in prices throughout the country with the benchmark Henry Hub price advancing on the week by 11 cents per MMBtu, or less than 2 percent, to $6.76. Regionally, market prices in Louisiana increased an average of 8.7 percent, or $0.54 per MMBtu, to $6.72. In the Midcontinent, the regional price recovered from extreme lows this fall season, rising by $1.74 to an average of $5.00, or more than 50 percent on the week. Increased demand in the Midcontinent is expected to firm prices softened by flows from the Rockies (through the Rockies Express Pipeline) and new production from shale formations. The abundance of supplies in the region has pushed prices below $3 per MMBtu at many trading locations since late September.

Further to the west, week-to-week price increases also were considerable in the Rockies, where the advent of colder weather has eased concerns over an abundance of supplies and limited options for storage. At Rockies trading locations, the average price increased $1.21 per MMBtu, or 31 percent, to $5.07. For supplies moving westward, weekly gains were particularly strong. The price for supplies on Kern River Pipeline in Utah (for delivery into California) increased $1.77 per MMBtu to $4.80. Although the weekly average increase was significant in the Rockies, the average price in the region was nearly the lowest in the country (with the exception of the Midcontinent and West Texas) at more than 40 percent below the Henry Hub price.

Prices in the Northeast were the highest of all regions, averaging $7.86 per MMBtu. Temperatures in the Northeast during this report week fell below normal as the season’s coldest weather to date moved across the region, likely boosting heating demand and supporting upward price movements. The regional average price of $7.86 per MMBtu was 77 cents higher than the previous week and a premium of $1.10 over the Henry Hub price. The premium in the Northeast price over Gulf of Mexico region prices tends to widen with the advent of colder weather. Because of increased demand relating to space-heating in the Northeast, interstate pipelines have limited flexibility to transport non-firm supplies between the two market and differences in local supply and demand conditions develop. Several points in the Northeast region posted gains of more than $1 per MMBtu on the week. For delivery in Zone 5 (the Mid-Atlantic region) off Transcontinental Gas Pipe Line, the price gained $1.04 per MMBtu to $7.99.

Deliveries of liquefied natural gas (LNG) imports remain below 1 Bcf per day. LNG imports appear to be on course to set a new 5-year low in 2008. For October, estimated deliveries averaged about 0.9 Bcf per day, which is 43 percent of the average of 2.1 Bcf for 2007. Few LNG cargos have been arriving to the United States under short-term authorizations from the Department of Energy’s Office of Fossil Energy. Short-term authorizations are approved for import agreements of less than 2 years in length. Instead, most LNG cargos with flexible delivery terms on the spot or short-term market are heading to Europe and Asia, where buyers continue to purchase LNG at higher prices than those that have prevailed in U.S. markets.

Spot Prices

At the NYMEX, the price of the near-month contract (for December delivery) increased 34 cents per MMBtu during the report week to $6.743. The increase was attributed chiefly to colder weather moving into consuming regions of the country. Nonetheless, the December contract is still trading at less than half of its record high price (of $14.25 per MMBtu) established just 4 months ago as concerns over the state of the economy and higher-than-average levels of natural gas in underground storage weigh on natural gas futures. Downward price pressure also appears related to an improved domestic production outlook and movements in the crude oil price, which decreased this week to its lowest level in 23 months (as of Wednesday, November 19). At the end of trading yesterday, the 12-month strip, which is the average for natural gas futures contracts over the next year, was priced at $7.02 per MMBtu, an increase of about $0.24 since last Wednesday.

Wellhead Prices Annual Energy Review
More Price Data

Working gas in storage totaled 3,488 Bcf as of Friday, November 11, 2008, according to EIA’s Weekly Natural Gas Storage Report (see Storage Figure). The implied net injection during the report week was 16 Bcf, bringing the current level of supplies in underground storage to 4.2 percent more than the 5-year average. On average over the past 5 years, industry has withdrawn 2 Bcf from storage during the comparable week. Last year, there was no change in the aggregate level of supplies in underground storage during the week. As a result, current inventories trail last year’s levels by 51 Bcf, which is well below the peak difference of 389 Bcf established on July 4. Storage inventories increased during the week despite significant volumes of natural gas shut-in this year because of damage caused by hurricanes. During the week ending October 23, an estimated 15.3 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 slightly warmer-than-normal temperatures across the Lower 48 States. As indicated by National Weather Service degree-day data, the number of heating degree-days totaled 1.6 percent below normal for the country as a whole, which likely limited space heating requirements. In particular, temperatures in major consuming markets in the Northeast were more than 10 percent warmer than normal, as measured by heating degree-days. In general, temperatures were slightly above levels typical for early November with an average overall temperature for the week of 47.9 degrees Fahrenheit, about 0.2 degrees above normal (see Temperature Maps and Data).

Storage Table

More Storage Data
Other Market Trends

EIA Releases Publication on Natural Gas Pipeline Transportation Capacity Growth. On November 18, 2008, the Energy Information Administration (EIA) released a new web product titled Major Changes in Natural Gas Pipeline Transportation Capacity, 1998-2008. The product covers instances of major growth on the national natural gas pipeline transmission network between 1998 and the end of 2008. Comparative U.S. maps are used in this PowerPoint report to illustrate pipeline capacity changes that occurred along major natural gas pipeline transportation corridors within the United States between 1998 and 2008.

EIA Releases the EIA-176 Query system. On November 18, 2008, the Energy Information Administration (EIA) released the EIA-176 Query System 2007. The query system contains responses from an identified universe of operators of fields, wells, and gas processing plants. The respondent companies distribute natural gas, transport natural gas by pipeline, and operate underground natural gas storage facilities. The query system application is a Windows-based system, which runs under Windows 95, 98, 2000, NT - 4.0 Service Pack 3 or later operating systems. The system allows the user to extract and use the company-level data filed on the Form EIA-176, “Annual Report of Natural Gas and Supplemental Gas Supply and Disposition.” The system is set up in a way that users can save the query results in various media and formats. There are pre-selected data queries, which allow the user to select and run the most often-used queries, as well as the ability to create a customized query. Self-extracting executable files with run-time versions of Access are required to set up the system.

Natural Gas Transportation Update

  • Southern California Gas Company issued a high-linepack operational flow order (OFO) for Saturday (November 15), assessing buy-back charges to customers who delivered more than 110 percent of their actual gas usage.

  • Pacific Gas and Electric Company also issued a systemwide stage 2 high inventory OFO on Friday (November 14) that the pipeline kept in place through Saturday with a positive daily imbalance of 5 percent.

  • Colorado Interstate Gas Company (CIG) declared a strained operating condition (SOC) on Saturday, November 14, that was in effect until Tuesday, November 18. The pipeline cited expected warm weather and high storage inventories as reasons for its extremely limited ability to absorb imbalances. These conditions also severely limited CIG's ability to handle excess storage injections.

  • As a result of very high linepack and full storage at the Jackson Prairie storage facility, Northwest Pipeline Corporation declared a general entitlement for overruns OFO with a 5-percent imbalance tolerance for all parties north of the Kemmerer, Wyoming, compressor station. The notice was effective on Saturday, November 15, and was in place through the end of gas day November 17.

  • Columbia Gas Company declared a force majeure on Friday, November 14, on Line 1278 in Milford, Pennsylvania. The force majeure was the result of a pipeline rupture that occurred on November 5. Repairs to the pipelines are expected to take 3 to 5 weeks.

  • Questar Pipeline Company installed a new filter for the Northwest tap at its Clay Basin storage facility in Utah between November 17 and 19, during which no physical withdrawals were allowed. Questar reported no customer impact as a result of this, since most nominations through that point were for injections.

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.