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Natural Gas Weekly Update

Natural Gas Weekly Update Text
Released: July 30, 2009
Next Release: August 6, 2009
Overview (For the Week Ending Wednesday, July 29, 2009)

  • Since Wednesday, July 22, natural gas spot prices fell at most market locations, with decreases of as much as 19 cents per million Btu (MMBtu). Prices at the Henry Hub declined by 8 cents per MMBtu, or about 2 percent, to $3.41 per MMBtu.

  • At the New York Mercantile Exchange (NYMEX), the futures contract for August delivery at the Henry Hub expired yesterday, July 29, at $3.379 per MMBtu, decreasing by 41 cents or about 11 percent during the report week.

  • Natural gas in storage was 3,023 billion cubic feet (Bcf) as of July 24, which is about 19 percent above the 5-year average (2004-2008), following an implied net injection of 71 Bcf during the report week.

  • The spot price for West Texas Intermediate (WTI) crude oil decreased by $1.16 per barrel since Wednesday, July 22, to $63.42 per barrel or $10.93 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 posted declines at most market locations since Wednesday, July 22, as a result of relatively moderate temperatures in the lower 48 States and robust levels of natural gas in storage. Natural gas spot prices at most market locations decreased by up to 19 cents per MMBtu, or 6 percent this trading week. Factors contributing to the decline in natural gas prices likely included moderate cooling demand for natural gas and plentiful supplies, as well as falling crude oil prices. In contrast to the price discounts reported at most market locations since last Wednesday, prices at several selected market locations in the Northeast and South Texas regions posted increases of less than 5 cents per MMBtu. The largest price increase since last Wednesday occurred at the Carthage market location in East Texas, where prices increased by 46 cents to $3.29 per MMBtu as of Wednesday, July 29. Most of this gain occurred in a single day of trading on Thursday, July 23, with prices climbing 43 cents per MMBtu. Prior to this rally, prices at the Carthage market location had been trading at a 58-cent discount relative to other market locations in East Texas on July 22.

On a regional basis, natural gas prices decreased by up to 15 cents per MMBtu, or 4 percent, since last Wednesday, July 22. Price declines were largest in the western regions of the lower 48 States, including the California, Arizona/Nevada, Rocky Mountains, Midcontinent, Midwest, and West Texas regions, where prices fell by more than 10 cents per MMBtu on average. The Alabama/Mississippi region posted the only double-digit decline among the remaining eastern portions of the lower 48 States, including Florida, Louisiana, and the Northeast. Owing to the 46-cent hike at the Carthage market location, the average price in East Texas increased 3 cents per MMBtu, despite price declines at each of the other market locations in the region since last Wednesday, July 22.

Natural gas prices at the Henry Hub remain well below last year’s level at this time. At $3.41 per MMBtu on Wednesday, July 29, prices at Henry Hub were $9.17 per MMBtu, or 63 percent, below last year’s level at this time. Current spot prices at market locations in the lower 48 States average about 62 percent below year-ago levels.

Spot Prices

At the NYMEX, the prices for natural gas delivery contracts through July 2010 declined by roughly 25 cents per MMBtu, or about 5 percent, during the report week. Prices for the 12-month futures strip (August 2009 through July 2010) averaged $5.21 per MMBtu as of Wednesday, July 29. Prices for the futures contracts for delivery during the remaining injection season months (August through October 2009) posted larger decreases than contracts for delivery later in 2009 or in early 2010, falling between 36 and 41 cents per MMBtu. Prices for delivery in the upcoming months of the 2009 injection season averaged $3.57 per MMBtu, while prices for delivery for the 2009-2010 heating season (November 2009 through March 2010) averaged $4.88 per MMBtu, indicating strong incentives for continued injections of natural gas into storage. Expiring at $3.379 yesterday (July 29), the near-month contract was 64 percent below the level reported last year at this time. The futures contract for August delivery declined 57 cents per MMBtu, or 14 percent, during its tenure as the prompt-month contract.

Wellhead Prices Annual Energy Review
More Price Data

Working gas in storage increased to 3,023 Bcf as of Friday, July 24, according to EIA’s Weekly Natural Gas Storage Report (see Storage Figure). The implied net injection of 71 Bcf was 4 percent above last year’s net injection of 68 Bcf and 39 percent above the 5-year average (2004-2008) injection of 51 Bcf for the same report week. Working gas inventories are 571 Bcf higher than year-ago levels and 478 Bcf above the 5-year average level. Working gas in storage exceeds historical levels by significant margins in each of the three regions, with the Producing region contributing the majority of the surplus relative to last year’s level, exceeding the 5-year average by 265 Bcf and last year’s levels by 307 Bcf.

This week marks the first time that working gas stocks exceeded the 3,000-Bcf threshold in July since the weekly series began in 1994. At 3,023 Bcf, working gas stocks are well ahead of the historical levels. The previous earliest calendar date that working gas stocks crossed the 3,000-Bcf threshold was August 31, 2007. This suggests that as of July 24, working stocks were about 5 weeks ahead of the previous record pace. Working gas stocks appear likely to exceed the previous all-time record in the history of the weekly series of 3,565 Bcf reported at the end of October 2007.

Relatively mild temperatures in each of the Census Divisions in the lower 48 States during the week ended July 23, 2009, likely contributed to the above-normal level of injections into storage. Based on the National Weather Service’s degree-day data, temperatures in the Lower 48 States during the week were, on average, more than 2 degrees cooler than normal and 4 degrees cooler than last year’s levels (see Temperature Maps and Data). Temperatures were warmest in the West South Central Census Division, where the average temperature was 82 degrees. In contrast to the rest of the lower 48 States, temperatures in the Mountain, and Pacific Census Divisions were warmer than normal.

Storage Table

More Storage Data
Other Market Trends

EIA Releases Natural Gas Monthly with Storage Data through May 2009. The Energy Information Administration (EIA) released the Natural Gas Monthly (NGM) on July 29. Total working gas in storage as of May 2009 was 2,367 billion cubic feet (Bcf), 28.9 percent higher compared with year–prior levels. The level of storage in May 2009 also represents the highest level for the month since data collection began. Factors likely influencing the robust storage levels include reduced natural gas demand from the weakened economy, robust supplies, and price arbitrage opportunities arising from differentials between current and future prices. At the State level, Texas had the biggest year-over-year increase of 94.5 Bcf or 34.5 percent. In May 2009, Texas had 368.6 Bcf working gas in storage, compared with 274.1 Bcf in the same month the previous year. Working gas in storage in Louisiana also showed a substantial year-over-year gain, from 172.5 Bcf in May 2008 to 250.5 Bcf in May 2009. These States represented an overall pattern occurring in the Producing region. This region accounted for close to 40 percent of total working gas in storage in May, compared with 27.8 percent in the same month in the previous year. In May 2009, working gas in storage in the East and West represented 44.3 percent and 16 percent, respectively, of total storage levels. Indiana, Maryland, and New York were the only States to have year-over-year reductions in working gas in storage. The NGM is available on EIA’s website at http://www.eia.doe.gov/oil_gas/natural_gas/data_publications/natural_gas_monthly/ngm.html

The natural gas rotary rig count increased this week. The natural gas rotary rig count rose to 675 as of Friday, July 24, an increase of 10 from the previous week, according to Baker Hughes Incorporated. The natural gas rig count has fluctuated in the past several weeks, oscillating between relatively small increases and decreases (see figure below). Horizontal rigs and vertical rigs (both of which represent oil and natural gas) have displayed similar oscillating patterns over the last several weeks. Horizontal rigs this week rose by 9 to 408, and vertical rigs rose by 7 to 352. Despite increases this week, all rigs have fallen substantially from their respective 2008 peaks. Vertical rigs have fallen at a much steeper rate than horizontal rigs, and in the past several months, the number of horizontal rigs has overtaken the number of vertical rigs. Vertical rigs have fallen 65 percent from their 2008 peak of 1,017, reached on August 29, 2008. On the other hand, horizontal rigs have fallen 37 percent from their peak of 650, reached on October 31, 2008. However, the decline in both vertical and horizontal rigs appears to be slowing.

figure 1

Natural Gas Transportation Update

  • Northwest Pipeline GP reported on Monday, July 27 that it would perform scheduled maintenance and replace a mainline pipe in Skamania County, Washington, between the Willard and Washougal compressor stations on July 29, 2009. All flows through the mainline were suspended during the outage. However, pipeline conditions at the time allowed Northwest to schedule up to 200,000 decatherms west through the Willard compressor, thus not affecting firm transportation.

  • Texas Gas Transmission LLC declared force majeure for August 1 until further notice on its Greenville Lateral. The company reported that it will continue to conduct required pigging, resulting in pressure restriction and a limitation on lateral capacity of 430,000 MMBtu per day. Pigging is the practice of using pipeline inspection gauges or 'pigs' to perform various operations on a pipeline without stopping the flow of natural gas in the pipeline. The term ‘pigs’ refers to the squealing sound the gauges make while traveling through a pipeline. The lower operating pressure created deliverability problems at the Texas Eastern-Kosciusko interconnect in Mississippi, resulting in reduced deliveries at the interconnect. As of the latest posting, the company did not provide further details regarding when the maintenance and associated constraints would end.

  • Gulf South Pipeline reported that the North Terrebonne Gas Plant was shut down on July 27 for necessary maintenance, which is expected to last for approximately 15 days. This maintenance includes depressurizing the pipelines that leave Gulf South’s Kent Bayou facility in Gibson, Louisiana, that deliver and receive volumes from the plant, installing additional equipment, and conducting inspections. A number of Gulf South locations have received waivers and will remain online as long as Gulf South is able to blend natural gas volumes to meet tariff specifications.

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.