Natural Gas

• Natural gas prices decreased this week as space-heating demand slackened with a break from the bitter cold of prior weeks. During the report week, the Henry Hub spot price decreased by $0.33 per million Btu (MMBtu) to $4.68.
  
• At the New York Mercantile Exchange (NYMEX), futures prices decreased for the report week as the economic downturn is expected to be accompanied with a large-scale reduction in demand for all energy products, thus affecting prices for energy in forward markets. The futures contract for February 2009 delivery decreased by 6.5 cents per MMBtu on the week to $4.532.
  
• As of Friday, February 6, working gas in underground storage was 2,020 billion cubic feet (Bcf), which is 1.2 percent above the 5-year (2004-2008) average.
  
• The price of West Texas Intermediate (WTI) crude oil finished trading yesterday at $35.93 per barrel, or $6.19 per MMBtu. The price was lower on the week by $4.34 per barrel.

Unseasonably warm, even spring-like, weather spread over the country during the report week, resulting in lower space-heating demand. Coupled with likely decreased consumption in the industrial sector related to the current recession, the lack of weather-related consumption predictably resulted in lower prices at most spot markets in the Lower 48 States. Price declines were most dramatic in Northeast markets, where the average spot price declined on the week by almost 39 percent from an average of about $8.60 per MMBtu to $5.26. This large price swing brought the lowest prices in the region in more than a year. Although scattered price increases occurred in Texas and in the West (particularly California), price weakness was widespread. Prices in the Gulf of Mexico region in Louisiana (which includes pricing of offshore Gulf production) generally declined by more than 6 percent. In Louisiana, the average decrease was $0.66 MMBtu, resulting in an average regional price of $4.60. Prices in the Midcontinent and Rockies producing regions, now generally below $4 per MMBtu, decreased by between 5 and 10 percent in most markets.

Price declines during the report week continued a trend of falling prices since the price spikes of last summer. Recent market trends reflect a number of altered fundamental conditions. The economic downturn has resulted in a decline in consumption, particularly in the industrial sector, with many companies announcing layoffs and closures of manufacturing plants around the country. Reduced prices for natural gas in recent months also relate to growing productive capacity in the Lower 48 States, particularly because of reported developmental activity at shale fields such as the prolific Barnett shale in Northeast Texas. Through the first 11 months of 2008, domestic production increased by 6.7 percent in comparison with the same period in 2007, according to EIA’s Natural Gas Monthly, despite estimated production shut-ins of more than 400 Bcf this fall as a result of hurricanes in September. Not only are prices in most regions of the country about one-third the record-high levels of more than $13 per MMBtu as recently as the beginning of July 2008, they have now reached multi-year lows.

By yesterday, February 11, spot prices in the Northeast had dropped almost 40 percent from week-earlier levels, as heating requirements from recent bitter cold relaxed. One of the largest declines (in percentage terms) occurred in the market for natural gas supplies off the Texas Eastern Transmission pipeline in the region, as the price averaged $5.26 per MMBtu yesterday, which was 50 percent lower than the previous Wednesday. At the heavily-traded New York market off Transcontinental Gas Pipe Line (Transco Zone 6), the price for delivery at Transco Zone 6 fell by $6.08, or 52.6 percent, during the report week to $5.47. The average price at Transco Zone 6 yesterday was $0.79 per MMBtu higher than the average Henry Hub price. This differential had surged to $6.54 at the start of the report week, as often occurs in the Northeast during the winter when low temperatures cause demand peaks and pipeline capacity into the region becomes constrained.

At the NYMEX, the price of the near-month contract (for March delivery) decreased by 1.4 cents per MMBtu during the report week to $4.532. Price changes during the week appeared mostly connected to evolving expectations for the economy as a whole. An economic slowdown would most likely result in lower natural gas consumption. The biggest price change during the week occurred on Tuesday (February 10), as the March contract finished trading 26.4 cents per MMBtu lower (coinciding with a decline in the Dow Jones Industrial Index of 382 points). Downward price pressure on futures prices also appears related to continued improvements in domestic production and declines in the crude oil price, which decreased this week to trade at less than $40 per barrel. 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 $5.33 per MMBtu, a decrease of about $0.07, or 1.3 percent, since last Wednesday. Futures prices for contract months through the next year exhibit an upward trend, so that by next March the contract price is $6.557 per MMBtu, which is $2.03 higher than the price of the near-month contract. This difference likely reflects market sentiment that the economy will improve over time, as well as an expectation that natural gas producers will reduce output in response to the lower prices in the interim.

Working gas in storage totaled 2,020 Bcf as of Friday, February 6, 2009, according to EIA’s Weekly Natural Gas Storage Report (see Storage Figure). The implied net withdrawal for the week of 159 Bcf was 7 Bcf less than the 166 Bcf average withdrawal over the past 5 years (2004-2008), although it was 15 Bcf more than the estimated withdrawal for the same week last year. The aggregate level of supplies in underground storage now exceeds the 5-year average by 1.2 percent.

Although aggregate withdrawals were below average, the net drawdown in the East Region exceeded average. Heating degree-days as published by the National Weather Service were between 7 and 21 percent above normal in all regions east of the Mississippi River, except for the West North Central Census Division. These cold temperatures likely provided one factor for the relatively large net withdrawals in the East region (see Temperature Maps and Data). Temperatures for the country as a whole during the report week were 1.6 degrees colder than normal and about 3.8 degrees below last year’s level.

This week’s withdrawal from storage reflects a number of market conditions. Current economic downturn and robust volumes from domestic production undoubtedly would have had a negative effect on the level of net withdrawals. However, this downward effect would have been offset by countervailing market influences such as shut-ins and backwardation in relative prices. Significant volumes of natural gas were still shut-in because of damage caused by hurricanes in the fall, with the Minerals Management Service reporting that as of yesterday 945 million cubic feet per day of production is still curtailed. Lastly, futures prices on the NYMEX during the week were lower than spot prices at the Henry Hub. This backwardation in the forward price curve provides an economic incentive to utilize available supplies in storage rather than hold supplies for future use.

Registration Now Open for EIA 2009 Conference: Registration is now open for the Energy Information Administration’s 2009 Energy Conference: A New Climate for Energy. The conference will be held April 7 and 8, 2009, at the Washington Convention Center in Washington, D.C. There is no fee for the conference. William D. Nordhaus, Sterling Professor of Economics at Yale University, and John W. Rowe, Chairman and Chief Executive Office, Exelon Corporation, will speak during the opening session. An agenda and list of confirmed speakers is available on the conference’s website.

EIA Releases Reserves Report: The Energy Information Administration on February 10, 2009, released its U.S. Crude Oil, Natural Gas, and Natural Gas Liquids Reserves Report, which includes information for 2007. According to the report, natural gas proved reserves increased by 26,641 billion cubic feet in 2007. Increases from the onshore Lower 48 States more than offset offshore losses in proved reserves. Total discoveries in 2007 were 29,091 Bcf, which is 59 percent more than the 10-year average and 25 percent more than 2006 levels. Dry natural gas production grew to 19,466 Bcf in 2007, which is a 5 percent increase over 2006 levels. The report highlights the increased role that unconventional resources have taken on in dry natural gas production, and notes that better technology allows for high economic returns at prices at 2006-2007 levels. Shale gas reserves make up 9 percent of the U.S. total as of 2007. Coalbed proved reserves increased 11.5 percent in 2007 and now account for 9 percent of U.S. dry natural gas reserves and 9 percent of U.S. dry natural gas production.

EIA Releases February Short-Term Energy Outlook. The Energy Information Administration on February 10 released its latest Short-Term Energy Outlook (STEO), which includes monthly forecasts through December 2010. The EIA anticipated the economic downturn to play a major role in natural gas trends. Overall residential prices are expected to average $11.64 per thousand cubic feet in 2009, which is roughly a 15 percent decline from 2008 levels of $13.62 per Mcf. EIA forecast that total natural gas consumption would fall by 1.3 percent in 2009 and then increase by 0.6 percent in 2010, with continued weakness in the industrial and electric power sectors outweighing weather-driven consumption in residential and commercial sectors in 2009. EIA projected Henry Hub prices per Mcf would fall to an average of $5.01 in 2009, compared with $9.13 in 2008. EIA forecast prices would rebound slightly in 2010 to $5.93 per Mcf. Total U.S. marketed production is expected to rise slightly in 2009, with an anticipated increase of 1.1 percent from onshore production, because of low operating costs of wells currently in use and lags in the effects of aggressive drilling, according to the STEO. A steep cutback in drilling activity, however, is likely to contribute to lower production in the second half of 2009. The STEO noted that cutbacks in production in the second half of the year may be necessary to balance supply and demand. In 2010, production is forecast to fall by 1.1 percent. LNG imports are expected to increase slightly from 2008 levels to 369 Bcf in 2009. The STEO projected storage inventories, currently at 2,020 Bcf, would end the heating season (March 31) at 1,460 trillion cubic feet, which is about 100 Bcf above the 5-year (2003-2008) average. Additionally, projected inventories would approach the record levels of 3,565 Bcf reached at the end of October 2007.

• ANR Pipeline Company began unplanned engine repairs at the Joliet Compressor Station in Illinois on February 10. The repairs are expected to be completed by February 24 and have resulted in a reduction of capacity to 90,000 decatherms (Dth) per day at the Natural Gas Pipe Line (NGPL)-Joliet interconnect. Based on ANR’s nominations, the pipeline anticipates that the reductions may result in curtailment of interruptible and firm secondary nominations.
  
• ANR also announced on February 6 that it completed engine maintenance at the Shelbyville, Indiana, compressor station and lifted all associated capacity restrictions into the Lebanon System in Indiana.
  
• Tennessee Gas Pipeline announced to its customers that it has put a new interconnect receipt meter with Texas Gas Transmission into service. The new meter, Isola Road, is located in Humphreys County, Mississippi, in the pipeline’s Zone 1 service area. The new meter was placed in service on February 10.
  
• Rockies Express Pipeline reported that it has postponed the previously scheduled maintenance at its Lost Creek booster station in Wyoming. The maintenance, which would affect nominations at the Lost Creek Sweetwater location, was originally planned for February 24-25, but was postponed until March.
  
• Texas Gas Transmission (TGT) reported that it was notified by Gulf South Pipeline on February 11 that a gas quality issue was discovered at the DCP Midstream East Texas Plant during scheduled maintenance. As a result of this, the East Texas Plant was shut in and TGT reported that the plant would remain offline until the gas quality issue was resolved. However, around mid day on February 11, DCP Midstream reported a fire near the East Texas Plant, resulting in a complete shut-down of the facility and all pipelines feeding into the plant. At the time of the report, DCP was not aware of the exact location of the fire, and indicated that it may take several days to identify the cause and the extent of damage.

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.