Natural Gas
Natural Gas Weekly Update Archive
for week ending December 10, 2008 | Release date: December 11, 2008 | Previous weeks
Next Release: December 18, 2008
| Overview | Prices | Storage | Other Market Trends | Natural Gas Transportation Update |
Overview (Wednesday, December 3, to Wednesday, December 10, 2008)
Natural gas spot prices decreased at most market locations in the Lower 48 States this report week, with all trading regions registering losses with the exception of the Rocky Mountains. On the week, the spot prices at each market location outside the Rockies fell between 2 and 93 cents per MMBtu, with the Henry Hub registering a decrease of 80 cents per million Btu (MMBtu) to $5.68.
- At the New York Mercantile Exchange (NYMEX), futures prices for the near-month contract declined each day for the first 3 days of the report and increased on Tuesday and Wednesday (December 9-10), resulting in a weekly net decrease of $0.661 per MMBtu. The increase in the past 2 days occurred in response to the increase in spot prices and the colder weather that moved into the Northeast. The January 2009 contract settled yesterday at $5.686 per MMBtu.
- Natural gas in storage decreased to 3,291 Bcf as of Friday, December 5, with net withdrawals totaling 67 Bcf. Currently, working gas storage volumes are 3.5 percent above the 5-year (2003-2007) average, but remain 1.3 percent below last year’s level.
- The average spot price for West Texas Intermediate (WTI) crude oil decreased by $3.69 per barrel on the week. The WTI settled yesterday at $43.10 per barrel or $7.43 per MMBtu, after hitting a low for this report week of $41.01 per barrel on December 5.
Unseasonably warm temperatures for part of this report week in the Northeast and Southeast, along with an expected decrease in industrial demand in the Lower 48 States, resulted in lower natural gas spot prices again this week. Furthermore, the drop in the crude oil prices to $43.10 per barrel lessened upward price pressure on natural gas spot prices. Price patterns in the natural gas markets seemed to follow the crude oil market this report week. The Louisiana Department of Natural Resources reported that three-quarters of the natural gas and crude oil production has been restored in the 17-parish area of Louisiana that was affected by Hurricanes Gustav and Ike. The surveys of the producers in the affected areas revealed that 1.2 Bcf per day or about 74 percent of total production has been restored, with about 17 percent or 277 MMcf per day remaining shut-in in the region.
Prices in the Northeast and the Midcontinent both decreased by an average of 50 cents per MMBtu, reaching $6.62 and $4.63, respectively. Prices in the Midwest, which is also a high-demand area for natural gas, recorded an average regional decrease of 75 cents on the week, falling to $5.86 per MMBtu. Producing areas along the Gulf Coast all recorded decreases on the week, ranging between 58 and 80 cents. The largest weekly regional decrease occurred in Louisiana, which dropped 80 cents or 12.4 percent to $5.66 per MMBtu. Similarly, the average price in Alabama/Mississippi fell by 77 cents to $5.59 per MMBtu. As of yesterday, natural gas spot prices ranged between $4.24 and $7.18 per MMBtu, significantly lower than the range 1 year ago of between $5.99 and $12.96 per MMBtu.
The only exceptions to the general pattern of weekly price decreases in the Lower 48 States occurred at a number of locations in the Rockies, where the markets recorded an average regional price increase on the week. Since last Wednesday, prices at six trading locations in the Rockies increased, with increases ranging between 19 and 36 cents per MMBtu. The higher prices followed weather forecasts for this region and the Midcontinent that called for temperature lows around 20 degrees Fahrenheit. Prices at the Colorado Interstate Gas Company’s trading location rose by 36 cents or more than 9 percent to $4.32 per MMBtu. As of yesterday, the average regional price in the Rockies was $4.76 per MMBtu, 4 cents higher than last Wednesday’s price.
At the NYMEX, the January 2009 contract for delivery at the Henry Hub settled yesterday at $5.686 per MMBtu, recording a net price decline of 70 cents so far in its tenure as the near-month contract. Similarly, the February 2009 contract also fell this week, settling yesterday at $5.746 per MMBtu. The NYMEX prices yesterday exceeded the Henry Hub spot price by only 0.6 and 6.6 cents per MMBtu. At current price levels, the heating season contract strip (January-March) is trading $1.367 per MMBtu, or nearly 20 percent lower than the same contracts last year at this time.
The relatively low current futures prices are the result of several factors. The slowing economy has resulted in a decrease of industrial natural gas consumption, and consumption in this sector likely will remain lower in the coming months. During the report week, Dow Chemical and 3M announced permanent closure of more than 20 plants and temporary closure of about 180 facilities, resulting in a production decrease of 30 percent. Both of these companies rely heavily on natural gas as feedstock. During the previous week, DuPont also announced significant cutbacks, which is expected to result in less industrial consumption of natural gas than previously anticipated. Aside from the economy and lower industrial consumption, weather and current volumes of natural gas in storage also have been depressing prices. Lack of considerable heating demand and the unseasonably warm weather in the Northeast and Southeast this week dampened futures prices. Higher-than-normal temperatures and ample natural gas in storage have provided further softness in natural gas prices.
Futures prices for natural gas delivery contracts during the next 12 months decreased between 35 and 66 cents per MMBtu, or 4 to 10 percent, since Wednesday, December 3. Prices for the 12-month futures strip (January 2009 through December 2009) averaged $6.208 per MMBtu as of Wednesday, December 10, falling by about 50 cents per MMBtu, or about 7 percent, since the previous Wednesday. However, as was the case with the near-month contract, the 12-month strip contracts also all increased in the last 2 trading days of the report week.
Working gas in storage decreased to 3,291 Bcf as of Friday, December 5, 2008, which is 3.5 percent above the 5-year average inventory level, according to EIA’s Weekly Natural Gas Storage Report (see Storage Figure).The implied net withdrawal of 67 Bcf from working gas was 38 percent lower than the 5-year average net withdrawal of 108 Bcf and 48 percent below last year’s net withdrawal of 129 Bcf for the same report week.
The lower-than-average net withdrawal occurred despite colder-than-normal temperatures in every Census Division with the exception of the Mountain, Pacific, and New England. According to the National Weather Service, heating degree-days were about 1 percent higher than normal in the country as a whole for the week roughly coinciding with the storage report. Temperatures in the Middle Atlantic and East North Central Census Divisions, which include key natural gas consuming areas, were between 2 and 11 percent lower than normal (see Temperature Maps and Data).
EIA Releases the December Short-Term Energy Outlook. The Energy Information Administration (EIA) on December 9 released its latest Short-Term Energy Outlook (STEO), which includes highlights of the impact on energy markets from the ongoing U.S. and global economic downturn and residential natural gas prices for this heating season. The current U.S. and global economic downturn now is projected to be more severe and last longer than what was indicated in last month’s STEO. As a result, the price of natural gas is expected to remain lower this heating season (October — March), compared with last heating season. The U.S. economic recession is a contributing factor to the decrease of natural gas wellhead prices. The spot price of natural gas at the Henry Hub is expected to average $9.17 per thousand cubic feet (Mcf) in 2008 and then decrease to about $6.25 in 2009. Total natural gas consumption is expected to increase by 0.5 percent in 2008 and then remain level in 2009—trends that are mostly weather related. Growth is expected in all demand sectors in 2008 except electric power, because of the projected 5.3 percent increase in heating degree-days compared with last year. However, the residential, commercial, and electric power sectors are expected to exhibit very slight growth in 2009. The industrial sector is expected to decline by 2.4 percent in 2009 because of the poor economic conditions. Total marketed natural gas production is projected to increase by 5.4 percent in 2008, and by 0.9 percent in 2009. Although onshore production is expected to continue growing in 2009, lower average prices and poor economic conditions are expected to limit the expansion of onshore production to 0.8 percent in 2009. U.S. imports of liquefied natural gas (LNG) are expected to total about 360 Bcf in 2008 and more than 400 Bcf in 2009. Working natural gas in storage continues above the 5-year (2003-2007) average but below levels during the corresponding week last year.
- After inspections of a large portion of its pipeline, Northwest Pipeline Corp. on Tuesday, December 9, reported that maintenance will be required on its Reno and Wenatchee laterals. Capacity will be limited to 132,000 decatherms (Dth) per day on the Reno lateral in southern Idaho, and 37,000 Dth per day north of the Zillah compressor station on the Wenatchee lateral in Washington. Recent flows at these locations have been about 127,000 Dth per day and 21,000 Dth per day, respectively. Investigations and repair work are scheduled to be completed by December 22. Additional flow restrictions are not currently anticipated but may be required if an anomaly is found that requires immediate repairs.
- Transcontinental Gas Pipe Line Corp. has notified shippers that it expects colder weather in its market areas to reduce flexibility to manage imbalances on its system. Effective with gas day Thursday, December 11, Transco will implement restrictions requiring that all shippers’ daily imbalances be no greater than 5 percent.
- On December 8, Northern Natural Gas Company experienced an interruption of flows at its compressor station in Sunray, Texas, as a result of a compressor unit outage. Flows at the BP-Sunray and Moore receipt points will be limited to a maximum of 45,000 Dth per day, with allocations beginning on the evening cycle of the December 9 gas day. Flows had averaged about 55,000 Dth per day before this maintenance.
- Questar Pipeline Company recently announced that its White River Hub, LLC, subsidiary has initiated service at the Magnolia receipt point in Rio Blanco County, Colorado. The receipt point, which has a capacity of 561,000 Dth per day, serves as an interconnection with Northwest Pipeline’s Parachute Lateral.
- Transwestern Pipeline Company on December 9 said it had experienced a mechanical failure at its Maljamar Compressor Station in West Texas. A unit at the station will be out of service until further notice, resulting in capacity through the station being reduced to 32,000 Dth per day from over 90,000 prior to the incident.
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.