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Natural Gas Weekly Update

Natural Gas Weekly Update Text
Released: April 23, 2009
Next Release: April 30, 2009
Overview (For the Week Ending Wednesday, April 22, 2009)

  • Since Wednesday, April 15, natural gas spot prices fell at most market locations in the Lower 48 States. Prices traded yesterday at or below $4 per million Btu (MMBtu) at all market locations.

  • The Henry Hub spot market price fell by 12 cents, or 3 percent, over the week to $3.48 per MMBtu yesterday.

  • The price for the May contract on the New York Mercantile Exchange (NYMEX) fell by 4 percent to $3.532 per MMBtu, from $3.693.

  • Natural gas in storage was 1,741 Bcf as of Friday, April 17, following a 46 Bcf injection. Inventories are now 23 percent higher than the 5-year average and 36 percent higher than the level 1 year ago.

  • The spot price for West Texas Intermediate crude oil ended the week down by $1.85 per barrel at $47.41, which is equivalent to $8.17 on an MMBtu basis.

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

Reversing gains in the previous week, spot prices fell in most market locations with a few exceptions. On average, prices fell by 12 cents in the Lower 48 States. Prices closed yesterday below $4 per MMBtu in all market locations except one, after trading below $4 per MMBtu the entire week in most locations. Four regions closed the week with average prices below $3 per MMBtu. The only exceptions to the downward price trend occurred in the Midcontinent. The CenterPoint East, CenterPoint West, Ozark Gas Transmission, and Panhandle Eastern markets posted gains between 1 and 4 cents this week, while the Southern Star trading location showed no change.

Cold temperatures have come to an end for the most part, with milder weather contributing to the fall in prices, as heating demand fell. Additionally, current natural gas supplies remain strong as evidenced by the end of storage withdrawals in late March. Northeast prices, which continued to trade at a premium to other market locations, are now at a regional average of $3.87, the lowest level since October 2, 2006. The Transco Zone 6 New York market ended trading for this week with the highest price in the Lower 48 States, at $4 per MMBtu. The Henry Hub price was $3.48 per MMBtu, reflecting a 12 cent or 3 percent decline from $3.60 on April 15. Henry Hub daily spot prices have been below $4 per MMBtu since March 27. The Henry Hub price has fallen by 36 percent since the beginning of the year, and by 67 percent from its year-ago level.

The biggest price declines occurred in the Rocky Mountains, with an average decline of 22 cents per MMBtu. Price declines ranged between 8 cents to 38 cents per MMBtu. The average price for the region is the lowest in the Lower 48 States, at $2.56 per MMBtu after declining by 8 percent on average during the week. Average prices in West Texas, the Midcontinent, and the Arizona/Nevada region also are below $3, at $2.86, $2.88, and $2.99 per MMBtu, respectively.

The natural gas rotary rig count, reported by Baker Hughes Incorporated, has fallen by more than half since September 2008. The rig count was reported at 760 as of April 16, 2009. This is a decline of about 40 percent from the beginning of the year, when a level of 1,267 natural gas rotary rigs were reported on January 2. The decline in natural gas rigs has occurred in response to the large price decreases since mid-2008. An eventual decline in production levels is expected as a result of reduced drilling. Some operators already have reported shut-in production as a response to the low prices.

Spot Prices

At the NYMEX, the natural gas futures price for the May contract finished the week at $3.532, remaining near the lowest levels for near-month contracts in more than 6 years. The contract price fell by 4 percent on the week, or about 16 cents. However, the settlement price yesterday represented a slight uptick from Tuesday, April 21, when the contract closed at $3.511, which was the lowest level for a near-month contract since September 25, 2002, when the near-month contract settled at $3.494. The near-month contract has now fallen by 67 percent from its level 1 year ago. The average price for the 12-month strip fell by 11 cents, or 3 percent, on the week, mirroring price changes in the spot market. The July 2009 contract posted the largest price drop, declining by 20.2 cents, or 5 percent. The largest declines occurred in the contracts for the upcoming months, with several contracts for the summer and fall of 2009 posting losses between 10 and 20 cents.

Wellhead Prices Annual Energy Review
More Price Data

Working gas in storage increased to 1,741 Bcf as of Friday, April 17, according to EIA’s Weekly Natural Gas Storage Report (see Storage Figure). The implied net injection of 46 Bcf compares with a 25 Bcf injection for the same week last year and a 5-year average (2004-2008) injection of 35 Bcf. Inventories in the Lower 48 States exceed last year’s inventories by 459 Bcf (36 percent), and the 5-year average by 322 Bcf (23 percent). The largest regional differences from the historical benchmarks are in the Producing region, where working gas exceeds the 5-year average by 223 Bcf and its year-ago levels by 273 Bcf.

Mild temperatures likely contributed to the strong storage injection. Data from the National Weather Service indicate that temperatures were 23 percent cooler than normal, as measured by heating degree-days (see Temperature Maps and Data). However, despite a significant relative deviation from normal HDD, average temperatures were relatively moderate, ranging from 43 to 62 degrees for the report week in the United States. The West South Central Census Division, with 62 degrees Fahrenheit, was the warmest of the nine Census divisions. The coldest temperatures occurred in the New England region.

Storage Table

More Storage Data
Other Market Trends

FERC Releases State of the Markets 2008 Report: Staff members of the Federal Energy Regulatory Commission (FERC) presented the State of the Markets 2008 report on April 16, 2009. The report focused on the levels of and fluctuations in energy prices and the impacts of recent financial turmoil on energy markets. Most natural gas prices in 2008 increased between 16 percent and 29 percent from their 2007 levels. The report found that supply and demand fundamentals alone did not sufficiently explain the wide swings in natural gas prices during 2008. However, factors such as a cold January and a drop in Canadian imports played a role in leading prices to spike at $13.31 per million British thermal units (MMBtu) of natural gas at the Henry Hub in July. By the end of the year, prices had fallen 57 percent to $5.71 per MMBtu. Falling demand and the financial crisis contributed to the steep drop in natural gas prices in the second half of the year. The FERC presentation noted that financial products continued to play a large role in energy markets in 2008, and the volume of financial natural gas contracts far exceeded physical trading. However, the presentation reported that financial natural gas trading declined in 2008, noting that the financial crisis affected energy market participants by limiting the availability of credit. The presentation noted that FERC has identified more than 20 producers who announced in the latter half of 2008 that they intend to reduce capital expenditures by more than $22 billion as a result of both falling demand and reduced access to capital. The presentation also highlighted the importance of new pipeline capacity. For example, the segment of the Rockies Express pipeline that came online in early 2008, REX-West, changed pricing dynamics in the Rockies region.

Natural Gas Transportation Update

  • Pacific Gas and Electric Company declared an operational flow order (OFO) for today on its California Gas Transmission system. Because of high levels of linepack (excessive supply in the pipeline), the company said the OFO will include penalties for shippers with unallocated supply on the system surpassing 5 percent of a shipper’s contractual agreement. A penalty of $1 per decatherm (Dth) was set for positive daily imbalances exceeding the 5-percent threshold.

  • Citing limited operational flexibility from growing supplies on its system, Tennessee Gas Pipeline Company issued a systemwide alert to shippers that it will penalize imbalances exceeding 2 percent or 500 Dth, whichever is greater. The systemwide balancing restrictions will be implemented on Friday, April 24, and remain in place until further notice, according to the company.

  • Southern Natural Gas Company has completed testing of operations of its Muldon Storage Field in Mississippi and started testing at the Bear Creek Storage Field in northwest Louisiana. The testing at Bear Creek will examine a variety of operations and is expected to continue through April 27. During this time period, customers will have reduced withdrawal and injection capability (equaling approximately 60 percent of contractual capacity).

  • Maintenance at the Opal Gas Plant in Wyoming will continue through tomorrow, Friday, April 24, according to plant-operator Williams Gas Management, a unit of Williams Companies. The maintenance, which is part of scheduled annual testing at the plant, will result in reduced capacity of between 20,000 Dth per day and 360,000 Dth per day.

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.