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Natural Gas Weekly Update

Natural Gas Weekly Update Text
Released: March 12, 2009
Next Release: March 19, 2009
Overview (For the Week Ending Wednesday, March 11, 2009)

  • Since Wednesday, March 4, natural gas spot prices declined at most market locations in the Lower 48 States, with decreases ranging up to 59 cents per million Btu (MMBtu). Prices at the Henry Hub fell 31 cents per MMBtu, or about 7 percent, to $3.92 per MMBtu.

  • At the New York Mercantile Exchange (NYMEX), the futures contract for April delivery at the Henry Hub settled yesterday, March 11, at $3.80 per MMBtu, declining 54 cents per MMBtu or about 12 percent during the report week.

  • Natural gas in storage was 1,681 billion cubic feet (Bcf) as of March 6, which is about 13 percent above the 5-year average (2004-2008), following an implied net withdrawal of 112 Bcf during the report week.

  • The spot price for West Texas Intermediate (WTI) crude oil decreased $2.82 per barrel since Wednesday, March 4, to $42.46 per barrel or $7.32 per MMBtu.

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

Natural gas spot prices continue to show considerable weakness, decreasing at most market locations in the Lower 48 States since Wednesday, March 4. Robust supplies and relatively weak demand continue to characterize natural gas markets. Moderating temperatures since Wednesday, March 4, eased heating demand, and a lower level of industrial demand for natural gas as a result of the ongoing economic downturn has been a key characteristic of the natural gas market during the 2008-2009 heating season. In addition, onshore natural gas production is estimated to be higher this year in comparison with last year. The price declines reported this week continued the general downward price trend that has prevailed since July 2008. Natural gas prices at the Henry Hub are now at $3.92 per MMBtu, or 71 percent below the relative peak of $13.31 per MMBtu reported on July 2, 2008. Despite this general decline in prices, a significant number of markets, principally in the West Texas, Midcontinent, and Rocky Mountains regions, reported price increases of up to 55 cents per MMBtu since last Wednesday, March 4. A cold front moving into the Midwest likely increased heating demand for natural gas, contributing to these price hikes.

Natural gas prices at the Henry Hub fell below the $4 mark for only the third time since November 2002. In trading on Friday, March 6, the Henry Hub spot price fell to $3.93 per MMBtu, its lowest level since September 29, 2006, when the spot price averaged $3.66 per MMBtu. However, the current price decline’s persistence distinguishes it from other transitory declines reported in 2003 and 2006. Not since November 15, 2002, has the spot price at the Henry Hub averaged below $4 per MMBtu on successive trading days, recording 4 days in a row below the $4 threshold.

The relative change in Henry Hub spot prices between mid November 2002 and this week are reflected in prices at other locations in the Lower 48 States. As a result, markets are now reporting price levels closer to 2002 levels than year-ago levels. Current prices on average are about 61 percent below the year-ago level. Spot prices are now about 10 percent above the Wednesday, November 15, 2002, level on average. However, those at some market locations are now below their 2002 price levels. Prices are as much as $1.06 below the November 15, 2002, price level at 31 market locations, located principally in the Gulf Coast and Midcontinent producing areas. Recent trade press reports suggest producers are curtailing the level of natural gas production because low prices are impinging on their ability to recover their production costs.

Spot Prices

At the NYMEX, the prices for natural gas delivery contracts through March 2010 fell between 43 and 57 cents per MMBtu, or 7 to 12 percent, since Wednesday, March 4. On Tuesday, March 11, the April futures contract settled at $3.798, the lowest level for a near-month futures contract since November 11, 2002, when the near-month contract settled at $3.778. Prices for the 12-month futures strip (March 2009 through February 2010) averaged $4.65 per MMBtu as of Wednesday, March 11, declining by roughly 50 cents per MMBtu, or about 10 percent, during the report week.

Wellhead Prices Annual Energy Review
More Price Data

Working gas in storage decreased to 1,681 Bcf as of Friday, March 6, according to EIA’s Weekly Natural Gas Storage Report (see Storage Figure). The implied net withdrawal of 112 Bcf was the equivalent of last year’s net withdrawal of 113 Bcf and 23 percent above the 5-year average (2004-2008) of 91 Bcf for the same report week. Working gas inventories are 271 Bcf higher than year-ago levels and 197 Bcf above the 5-year average. While working gas in storage exceeds historical levels by significant margins, the Consuming East region remains 55 Bcf below the 5-year average and 11 Bcf below last year’s levels, or 7 and 2 percent, respectively.

Colder-than-normal temperatures likely contributed to the relatively large net withdrawal. The National Weather Service’s heating degree-day (HDDs) data show that temperatures in the Lower 48 States during the week were colder than both normal and last year’s levels (see Temperature Maps and Data). Overall, HDDs in the Lower 48 States were almost 15 percent above normal and 9 percent higher than last year. The colder-than-normal temperatures prevailed in all Census Divisions, except the Mountain and Pacific. The Mountain Census Division was 23 and 12 percent below normal and last year’s levels, respectively. Meanwhile, heating degree-days in the Pacific Census Division were 7 percent below normal and 9 percent above last year’s levels.

Storage Table

More Storage Data
Other Market Trends

EIA Releases March Short-Term Energy Outlook. The Energy Information Administration (EIA) released its latest Short-Term Energy Outlook (STEO) on March 10, which includes monthly forecasts through December 2010. EIA predicted that the economic downturn would continue to depress natural gas prices and consumption. EIA projected that Henry Hub prices likely would remain below $5 per thousand cubic feet (Mcf) for most of 2009, reflecting weakness in the economy. According to the STEO, residential prices will average $11.44 per Mcf in 2009, followed by $11.59 per Mcf in 2010. The 2009 and 2010 levels would be 17 percent and 15 percent, respectively, below the 2008 average residential level of $13.70 per Mcf. Despite poor economic conditions, gas demand is not expected to decline in all sectors. Lower natural gas delivered prices relative to coal in some markets, particularly in the Southeast, are expected to cause some electric power generators to switch generation from coal to natural gas. The electric power sector’s consumption of natural gas is projected to grow by 0.4 percent in 2009. Overall, EIA projected a 1.3 percent decline in natural gas consumption in 2009 and a 0.4 percent increase in 2010. Noting that the natural gas rig count as reported by Baker Hughes Incorporated has fallen to 916 as of March 6, EIA predicted an end to robust production growth in the Lower 48 States. EIA predicted marketed production would remain flat at 58.6 billion cubic feet per day (Bcf) in 2009 and fall by 0.8 percent in 2010 to 58.1 Bcf per day as a result of fewer wells drilled this year. However, rig activity is expected to recover in 2010. Imports of liquefied natural gas (LNG) are expected to increase slightly in 2009 as new supply capacity becomes available. However, concerns remain regarding delays in increasing LNG supply capacity and weak demand in other countries. The STEO predicted a 9.4 percent decline in pipeline imports in 2009 as Canadian production subsides and natural gas supplies are diverted to oil sands development. EIA predicted that storage inventories at the end of March 2009 would be about 1.6 trillion cubic feet, approximately 200 Bcf above the 5-year average (2004-2008) for that time.

EIA Issues Notice on Revised Release Procedure for the WNGSR. On March 6, the Energy Information Administration (EIA) issued a notice, Weekly Natural Gas Storage Report Notice: Upgrade to Gatekeeper Application. This notice informs customers of the Weekly Natural Gas Storage Report (WNGSR) that a new version of the Gatekeeper application for the WNGSR will be implemented as of April 2, 2009. Use of the Gatekeeper application ensures secure and prompt posting of the WNGSR. Gatekeeper denies customer access to the data area for a brief period before the release time for the new data. The transition to the new version of the Gatekeeper application is expected to run smoothly, but EIA will provide opportunities to test the Gatekeeper application to all users of the data. EIA recommends that customers test the program on March 13 and March 20. For further information about the testing, please refer to the notice.

EIA Posts New Presentation from Calgary Natural Gas Pipeline Conference. A new presentation, titled Exploring Pipeline Dynamics to Connect New Markets, is now available on the Energy Information Administration’s (EIA) web site. This presentation provides analytical results of ongoing research at the Natural Gas Division, Office of Oil and Gas (NGD), regarding the role of natural gas pipelines in the marketplace. The presentation includes the latest market developments for pipeline expansion and new construction. While the tone of the conference was expectedly subdued in light of the current economic downturn, EIA reported natural gas pipeline construction activity was still ongoing. In fact, construction activity is expected to remain high over the next few years because of the need to bring new supplies from unconventional producing fields in the Rockies and in the Southwest. NGD monitors pipeline construction activity through its GasTran Natural Gas Transportation Information System.

Natural Gas Transportation Update

  • Kern River Gas Transmission Company announced that it will conduct required annual tests of its Emergency Shut Down (ESD) system over the next several weeks. During the testing, various compression units will be taken offline, which will affect capacity on the pipeline system. Continuing through today (March 12), capacity will be reduced by about 120,000 decatherms (Dth) per day from operational maximum capacity of 2,076,000 Dth per day as a result of testing of the Salt Lake, Utah, compressor station. Annual maintenance is also scheduled at the Elberta Compressor Station in Utah for March 17 and the Muddy Creek compressor station in Wyoming for March 18.

  • Because of Kern River Gas Transmission Company maintenance, Questar Pipeline Company has delayed maintenance at Oak Spring Compressor Station in Utah by one week. The pipeline company announced that it will replace an engine at the Oak Spring station between March 24 and March 26. Capacity will fall to 290,000 Dth per day during the period of maintenance from regular capacity of 500,000 Dth per day.

  • ANR Pipeline Company on March 9 announced that it will continue unplanned pipeline maintenance on infrastructure at Eugene Island off the coast of Louisiana. As a result, the receipt point on ANR at this location is unavailable.

  • Southwest Gas Corporation announced this week that deliveries into the Las Vegas area will not be available from April 7 to April 8. Southwest said maintenance will affect deliveries into the area from both El Paso Natural Gas Company and Transwestern Pipeline Company. Southwest recommended that customers redirect supplies to Kern River Gas Transmission for the duration of the maintenance.

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.