• Since Wednesday, April 1, natural gas spot prices declined at most market locations in the Lower 48 States, with decreases ranging up to 40 cents per million Btu (MMBtu). Prices at the Henry Hub fell by 6 cents per MMBtu, or about 2 percent, to $3.50.



• At the New York Mercantile Exchange (NYMEX), the futures contract for May delivery at the Henry Hub settled yesterday, April 8, at $3.63 per MMBtu, declining by 7 cents or about 2 percent during the report week.



• Natural gas in storage was 1,674 billion cubic feet (Bcf) as of April 3, which is about 23 percent above the 5-year average (2004-2008), following an implied net injection of 20 Bcf during the report week.



• The spot price for West Texas Intermediate (WTI) crude oil increased by $0.91 per barrel since Wednesday, April 1, to $49.37 per barrel or $8.51 per MMBtu.

Natural gas spot prices continue to show considerable weakness, decreasing at most market locations in the Lower 48 States since Wednesday, April 1. Robust supplies and relatively weak demand continue to characterize natural gas markets. Natural gas prices experienced slight rallies in trading on Thursday, April 2, and on Monday, April 6, but moderating temperatures in the ensuing trading days eased heating demand. The price declines after each rally were sufficient to offset the increases, and prices at most market locations posted week-on-week declines. 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 $3.50 per MMBtu, or 74 percent below the relative peak of $13.31 per MMBtu reported on July 2, 2008. Despite this general decline in prices, a number of markets, principally in the West Texas, Midcontinent, Midwest, and Northeast regions, reported price increases of up to 25 cents per MMBtu since last Wednesday, April 1.

A lower level of industrial demand for natural gas continues to play a key role in natural gas markets and the generally lower level of natural gas prices. The economic weakness that led to the fall in industrial demand for natural gas may persist in the upcoming months. On Friday, April 3, for example, the U.S. Department of Labor released its March employment data that indicated the economy shed jobs at a faster than expected rate of 663,000 jobs during March 2009, and posted a higher than expected level of unemployment of 8.5 percent. However, the low natural gas prices have made domestic fertilizer production more economical, and as a result some U.S. plants have increased production of ammonia, which is a key input for fertilizer. Expanded operations in portions of the industrial sector, such as ammonia, may begin to form a price floor.

On the supply-side, domestic producers are reducing activity, which is expected to result in a decline later this year. Natural gas rig counts continue to decline in response to the lower natural gas prices. Baker-Hughes reported that the number of rigs drilling natural gas prospects had fallen to 808 for the week ended April 3, which is 650 fewer rigs than last year at this time and 798 below the peak of 1,606 on September 12, 2008. Falling rig counts will eventually result in declining natural gas production, which will provide support for natural gas prices. Recent trade press reports indicate producers already are curtailing natural gas production because low prices are impinging on their ability to recover their production costs. However, production through January 2009 has continued to grow on a year-over-year basis. Nevertheless, uncertainty continues to characterize the natural gas market, as both the duration of the general decline in industrial demand and the timing and magnitude of the expected decline in production remain unknown.

Natural gas prices at the Henry Hub are at their lowest levels since September 17, 2002. In trading on Wednesday, April 8, the Henry Hub spot price fell to $3.50 per MMBtu, its lowest level since September 17, 2002, when the spot price averaged $3.46 per MMBtu. As a result, markets are now reporting price levels closer to 2002 levels than year-ago levels. Current spot prices at market locations in the Lower 48 States on average are about 65 percent below year-ago levels, and within 15 percent of the levels reported on September 17, 2002.

At the NYMEX, the prices for natural gas delivery contracts through April 2010 fell on average, since Wednesday, April 1. On Tuesday, April 7, the futures contract for delivery in May 2009 settled at $3.562 per MMBtu, the lowest level for a near-month futures contract since September 25, 2002, when the near-month contract settled at $3.494. In trading on Wednesday, April 8, the price for the May contract recovered somewhat, settling at $3.63 per MMBtu. Prices for the 12-month futures strip (May 2009 through April 2010) averaged $4.72 per MMBtu as of Wednesday, April 8, declining by roughly 2 cents per MMBtu, or less than 1 percent, during the report week. Prices for the futures contracts for delivery during the remaining injection season months (May through October 2009) posted larger declines than contracts for delivery later in 2009 or in early 2010, falling between 3 and 7 cents per MMBtu. In contrast to this overall pattern of falling futures prices, the December 2009 contract recorded a gain of less than a penny, while the April 2010 contract gained nearly 2 cents per MMBtu since last Wednesday, April 1.

Working gas in storage increased to 1,674 Bcf as of Friday, April 3, according to EIA’s Weekly Natural Gas Storage Report (see Storage Figure). The implied net injection of 20 Bcf contrasts with last year’s net withdrawal of 16 Bcf and the 5-year average (2004-2008) injection of 13 Bcf for the same report week. Working gas inventories are 438 Bcf higher than year-ago levels and 310 Bcf above the 5-year average. Working gas in storage exceeds historical levels by significant margins in each of the three regions, with the Producing region constituting the majority of the surplus, exceeding the 5-year average by 213 Bcf and last year’s levels by 246 Bcf.

This week marks the third consecutive week, dating back to the week ending March 20, without a net withdrawal from working gas storage. While net injections of working gas into storage have occurred 10 percent of the time during March in the 16-year history of the weekly storage data, this week is the first time that working gas stocks did not post a net decline or interpolated net decline during the last 3 reports of the heating season. Absent a net withdrawal in April, the report for the week ended March 20, 2009, marks the earliest start of the natural gas storage injection season on record.

Temperatures were slightly colder than normal on average in the Lower 48 States during the week ended April 2, 2009. The National Weather Service’s heating degree-day (HDD) data show that temperatures in the Lower 48 States during the week were 2 percent colder than normal but 5 percent warmer than last year’s levels (see Temperature Maps and Data). The colder-than-normal temperatures prevailed in the Mountain, West South Central, and West North Central Census Divisions. The Mountain and West North Central Census Divisions were particularly colder than normal, with each posting average temperatures below 40 degrees for the week, contributing to increased heating demand in these Census Divisions, The rest of the Lower 48 States Census Divisions reported temperatures between 42 and 57 degrees.

EIA Issues Report Describing Its Categories of Natural Gas Production Data. This special report, EIA’s Natural Gas Production Data, examines the stages of natural gas processing from the wellhead to the pipeline network through which the raw product becomes ready for transportation and eventual consumption. This report also analyzes how this sequence is reflected in the data published by the Energy Information Administration (EIA). The discussion will be helpful to users of the data published by EIA in the Natural Gas Annual and Natural Gas Monthly, in particular, and industry analysts interested in gaining a better understanding of the production process.

EIA Updates Status of Retail Choice Programs. EIA has updated its Web-based report, Natural Gas Residential Choice Programs, on the status of retail gas competition in each State. Enrollment in “customer choice” programs increased in 2008 for the third consecutive year, although the number of States offering choice remained the same. Twenty-one States and the District of Columbia have legislation or programs in place that let residential consumers and other small-volume gas users purchase natural gas from an entity other than their traditional utility company. However, the availability and characteristics of these customer choice programs vary widely from State to State. According to the report, enrollment in customer choice programs reached a new high in 2008, increasing by 6 percent over the 2007 level. Most States with active programs had enrollment gains and increases in the percentage of eligible customers participating. New York had the largest enrollment increase with about 102,000 more residential customers participating than in 2007, a gain of 21 percent. Overall, about 13 percent or 4.7 million of the approximately 35 million residential natural gas customers with access to choice were buying natural gas from marketers as of December 2008, up from the 4.4 million participating in 2007. The number of marketers providing services to residential customers increased or remained the same in most States, and the overall total was 9 percent more than in 2006 (99 compared with 91).

Average Hurricane Activity in 2009. The 2009 Atlantic hurricane season is expected to have about as much activity as the average season in 1950 to 2000, according to forecasts by Colorado State University’s (CSU) Tropical Meteorology Project. Updated forecasts were released on Tuesday, April 7, 2009, in a report by Philip J. Klotzbach and William M. Gray titled Extended Range Forecast of Atlantic Seasonal Hurricane Activity and U.S. Landfall Strike Probability for 2009. The authors decreased their seasonal forecast from the initial early December prediction. The latest analysis includes an expectation that the current weak La Niña conditions will transition to neutral or perhaps weak El Niño conditions by this year’s hurricane season. The potential for a weak El Niño is one reason for the reduced forecast. The CSU study predicts that there will be 12 named storms and 55 named-storm days. The prediction includes 6 hurricanes and 25 hurricane days in 2009, with 2 intense hurricanes (Category 3-4-5) and 5 intense hurricane days. The probability of least one major hurricane making landfall in the entire U.S. coastline is 54 percent, which is 2 percent higher than during the last century.

• As a result of production shut-ins at the Sable Offshore Energy Inc. production facility, flows have been disrupted on the Maritimes & Northeast Pipeline, which transports gas from Sable Island. Shippers who sourced their supply from the Sable Island facility were told to contact their supplier for information concerning the cause, extent and duration of the shut-ins. Repairs to the facility, which produces 400-500 million cubic feet of natural gas per day, are likely to be completed within several days.



• Effective April 7, 2009, Texas Gas Transmission began running an in-line inspection tool on the Fayetteville Lateral from the Bald Knob area of Arkansas to Lula, Arkansas. The inspection was expected to last 18 to 24 hours.



• Mississippi River Transmission Corp. said it would lift its cold-weather-based Systems Protection Warning #310, effective at the beginning of the gas day April 7. The Systems Protection Warning took effect on April 5 and MRT noted that it would not schedule volumes resulting in a daily short position by zone anywhere on the system.



• Noting that it had exchanged its unit #2 compressor engine at its Salt Lake Compressor Station in Utah in March 2009, Kern River Gas Transmission Co. said the new engine was not performing to expected specifications and will be replaced on gas days April 8 and 9, 2009. Operational capacity at the Veyo compressor was 1,965,000 decatherms (Dth) on April 8; and on April 9, will be 1,965,000 Dth for Timely, Evening, Intraday I, and will be 2,023,000 Dth for Intraday II. These levels are a reduction from average Veyo operational capacity of 2,081,000 Dth per day for the month of April.

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.