Natural Gas

• Reversing gains from the previous week, natural gas prices posted declines in both the spot and futures markets, with decreases in the spot markets of up to 48 cents per million Btu (MMBtu). The Henry Hub spot price fell 25 cents, or 7 percent, closing at $3.36 per MMBtu on Wednesday, August 12.
  
• The natural gas futures contract for September 2009 at the New York Mercantile Exchange (NYMEX) fell 56 cents, or 14 percent, on the week, closing at $3.479 on Wednesday. During its tenure as the near-month contract, the price of the September 2009 contract peaked at $4.042 on August 5.
  
• Natural gas in storage increased by 63 billion cubic feet (Bcf) to 3,152 Bcf for the week ending August 7, 2009, according to EIA’s Weekly Natural Gas Storage Report.
  
• As of August 7, the number of natural gas rotary rigs was 681, an increase of 4 from the previous week, according to Baker Hughes Incorporated data. Following several months of decline, the number of rigs has oscillated in the last several weeks, which could indicate that the rig count has stopped declining. However, natural gas rigs are currently 57 percent lower than year-ago levels, when they were near record highs.
  
• Mirroring natural gas prices, the price of the West Texas Intermediate crude oil contract fell by $1.89, or about 3 percent, closing at $70.08 per barrel, or $12.08 per MMBtu, yesterday.

Across all U.S. market locations, price decreases averaged 36 cents, as all market locations but one posted declines. The Henry Hub price fell 25 cents, closing at $3.36 per MMBtu on Wednesday. All trading locations posted declines on the week, except the Florida Gas Transmission Citygate trading point, which posted a net change of zero. Florida is the only market location with a price above $4 per MMBtu, ending the week at $4.82 per MMBtu. Prices in most trading locations closed in the $3 range, with exceptions at trading points in the Rocky Mountains. Questar and Kern River posted decreases of 48 cents, closing at $2.87 per MMBtu. Gas prices at these two locations are currently the lowest of the 78 trading points analyzed. Weather in the Rocky Mountains and Midcontinent region was cooler than normal this week, likely contributing to price weakness.

Spot prices spiked at most locations on Thursday, August 6, with the Henry Hub price rising 17 cents. Prices peaked on Thursday, August 6, continuing the recent pattern of increasing prices that began during the previous report week, as a result of warm weather and pipeline maintenance in some areas. However, prices fell in subsequent trading days, despite continued maintenance in some areas such as on Enterprise Product Partners’ High Island 264 platform in the Gulf of Mexico. Areas in Texas and around the Gulf of Mexico generally posted declines of more than 30 cents, despite mean temperatures in the upper 80s in most of the State during the reference week. Outside of the South, temperatures were generally somewhat cooler than normal, contributing to slightly higher price declines compared with areas experiencing hotter temperatures.

Natural gas prices have dropped drastically since the beginning of 2009 and compared with year-ago levels. At $3.36 per MMBtu, the Henry Hub price is 38 percent lower than its level of $5.41 per MMBtu at the beginning of the year, and 59 percent lower than its level of $8.23 per MMBtu recorded on August 12, 2008. Robust natural gas supplies and weak demand resulting from the economic downturn have contributed to the fall in prices.

The price of the natural gas futures contract for September delivery fell on the week, from $4.042 per MMBtu to $3.479 per MMBtu. This price decrease represents about a 56 cent decline on the week. Prices fell during each day of the report week, dropping by close to 30 cents on Thursday. Futures prices are likely falling as a result of perceived robustness in natural gas supplies, with storage likely to reach a record high at the end of the injection season. Since the beginning of the year, the September 2009 contract has lost almost 59 percent of its value, falling from $8.466 per MMBtu on January 2. The 12-month strip also declined on the week, dropping 35 cents from $5.603 to $5.250. The largest declines occurred for the September and October contracts, and each month declined less than the contract for the previous month. Mirroring the spot market, natural gas futures also reversed gains made in the previous week.

Working natural gas in storage increased by 63 Bcf to 3,152 Bcf as of Friday, August 7 (see Storage Figure). Working gas in storage is now 23.1 percent above year-ago levels and 19.6 percent above the 5-year (2004-2008) average. The implied net injection of 63 Bcf exceeded the 5-year average injection of 42 Bcf and last year’s injection of 51 Bcf. At 3,152 Bcf, natural gas is currently at its highest level ever recorded for the month of August. Storage at the end of the injection season is projected to be at a record high of 3,801 Bcf, according to EIA’s August Short-Term Energy Outlook (STEO). If injections through the end of the season match the 5-year average (739 Bcf), natural gas in storage will end the injection season at 3,891 Bcf, exceeding the STEO’s estimate. The bulk of the storage injection came from the East region, which injected 56 Bcf. The West and Producing region injected 2 Bcf and 5 Bcf, respectively.

Robust natural gas production volumes, as well as significant opportunities for arbitrage, contributed to the strong storage injections. During the report week, futures contract prices for winter of 2009-2010 were trading at a premium of close to, and sometimes exceeding, $2 per MMBtu over the near-month contract. On the last day of the storage report week, the January 2010 contract for natural gas closed $5.702 per MMBtu, which was $2.028 per MMBtu greater than the September 2009 contract, which closed at $3.674 per MMBtu on the same day. Additionally, temperatures during the report week were relatively mild, at 74.6 degrees on average for the entire country, according to the National Weather Service (see Temperature Maps and Data).

EIA Releases the August Short-Term Energy Outlook. The Energy Information Administration (EIA) released its latest Short-Term Energy Outlook (STEO) on August 11, which includes a special report entitled Carbon Dioxide (CO2) Emissions Forecasts (see related article in this section). According to the report, EIA expects the spot price of natural gas at the Henry Hub to stay below $4 per thousand cubic feet (Mcf) until late in the year, as natural gas inventories are expected to set a new record high at the end of this year’s injection season (October 31). The Henry Hub spot price is expected to increase from $3.92 Mcf in 2009 to $5.48 Mcf in 2010. Total natural gas consumption is expected to decline by 2.6 percent in 2009 as a result of the economic downturn, but increase slightly (0.5 percent) in 2010. A 2-percent increase in electric power sector consumption in 2009 is anticipated, as natural gas prices are expected to decline until the end of this year. Total U.S. marketed production is expected to remain at about the same level in 2009, but decline by 2.8 percent in 2010 because of a significant reduction in drilling activities. According to Baker Hughes Incorporated, total working natural gas rigs are down 58 percent from September 2008. The natural gas rig count is 681 for the week ending August 7.

EIA Releases Supplement to Short-Term Energy Outlook. The Energy Information Administration (EIA) released a supplement to its August 2009 Short-Term Energy Outlook (STEO), entitled Carbon Dioxide (CO2) Emissions Forecasts. This supplement contains historical and forecast data of carbon dioxide emissions from coal, natural gas, and petroleum. According to the current outlook, natural gas-based carbon dioxide emissions are projected to decline by 2.3 percent in 2009. Although consumption of natural gas in the electric power sector is expected to increase significantly, consumption in all other major sectors is expected to decline overall in 2009. Emissions from natural gas are expected to grow slightly in 2010, with a projected increase in natural gas consumption of 0.7 percent. Overall fossil fuel emissions, including those from coal, natural gas, and petroleum, are expected to fall 5 percent in 2009 as a result of current weakness in the economy. Emissions from fossil fuels are expected to increase 0.7 percent in 2010 as the economy begins to recover. The historical data published in the STEO are from EIA’s Emissions of Greenhouse Gases Report and the Monthly Energy Review, which will also begin publishing emissions data in its August 2009 edition. The supplement to the STEO is available at http://www.eia.doe.gov/emeu/steo/pub/special/2009_sp_04.html

EPA Data Indicate Increases in ENERGY STAR® qualified Homes in the United States. The number of ENERGY STAR qualified homes built in the United States has increased nearly 20-fold between 1998 and 2008, according to U.S. Environmental Protection Agency (EPA) data. The data coincide with declining per-household use of natural gas across all Census Divisions during the same period. States in the West South Central Census Division (Texas, Oklahoma, Arkansas, and Louisiana), are leading the country in terms of new ENERGY STAR qualified homes, including manufactured homes and multi-family projects. This increase is likely the result of population growth and turn-over in housing stock. In 2008, 34,876 new ENERGY STAR homes were built in the West South Central Census Division, representing nearly 32 percent of the U.S. total increase. Through the beginning of August 2009, 13,746 ENERGY STAR homes were built in this Census Division, accounting for the largest share (32 percent) of the total year-to-date increase in the United States. The largest per-household drop in natural gas consumption since 1998 (14.7 percent) occurred in the West South Central Census Division, according to preliminary EIA data. The aggregate number of homes (through the current period) in the West South Central Census Division accounts for 31 percent of the total of ENERGY STAR qualified homes built in the United States. The EPA data also reflect broader trends in the housing market, as the number of ENERGY STAR qualified homes declined nearly 10 percent in 2008 from the prior levels reported in 2007. Furthermore, in many States where the impact of the housing crisis was most significant, the relative share of ENERGY STAR qualified homes declined since the peak of the housing bubble in 2006. For example, in 2006, 28,348 new ENERGY STAR homes were built in California, accounting for 15 percent of the U.S. total. In 2008, only 7,217 new ENERGY STAR qualified homes were built in this State, accounting for only 7 percent of the total. More than 7 months through 2009, the total number of ENERGY STAR homes constructed is only 39 percent of the total number homes constructed in 2008.

• The Rockies Express Pipeline (REX) is performing two separate maintenance projects this week on two of its compressor stations. On Thursday, August 13, the pipeline’s Arlington compressor station in Wyoming is expected to experience capacity reductions as a result of the maintenance, bringing total capacity at the station to 1.6 Bcf. Additionally, the capacity of the Steele City compressor station in Nebraska, which maintenance is expected to affect on August 13-14, will be reduced to 1.2 Bcf per day.
  
• REX announced on August 11 that REX East will begin delivery service to ANR’s Shelby interconnect in Indiana on Friday, August 14. The interconnect design capacity is 560 million cubic feet (MMcf) per day, according to the pipeline’s notice.
  
• Enterprise Product Partners, LP reported that force majeure continues to remain in effect following the fire last week at the High Island Offshore System’s platform. According to the company, the platform has sustained significant damage to compression, power generation, and communications. Enterprise anticipates the completion of all damage assessment by the end of the current calendar week, but noted that compression facilities may be unavailable indefinitely. The company is currently trying to bypass the platform, but has not received approval from the Federal Government. The force majeure will remain in effect until further notice.

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.