Natural Gas

• Natural gas prices posted significant increases at all market locations since last Wednesday, September 2. The Henry Hub spot price increased 47 cents from the previous Wednesday’s price of $2.25 per MMBtu. However, intraweek trading was volatile, with natural gas prices falling below $2 per million Btu (MMBtu) at the Henry Hub on Friday, September 4 and rising to $2.72 per MMBtu yesterday.
  
• At the New York Mercantile Exchange (NYMEX), the price of the near-month natural gas contract for delivery in October 2009 rose by 11.4 cents to $2.829 per MMBtu, an increase of about 4 percent from the previous week’s level of $2.715. While the price of the near-month contract also fell lower during the week before rebounding, price changes in the near-month contract during the report week were much less pronounced than they were in the spot market.
  
• As of Friday, September 4, working natural gas in storage was 3,392 billion cubic feet (Bcf) following an implied net injection of 69 Bcf.
  
• The West Texas Intermediate (WTI) crude oil contract ended trading at $71.27 per barrel yesterday, an increase of $3.24 or about 5 percent, from the previous Wednesday’s price of $68.03 per barrel. On a heat-content basis, the oil price settled yesterday at $12.29 per MMBtu.
  
• The natural gas rotary rig count increased by 2 to 701 as of September 4, according to data Baker Hughes Incorporated released, marking the seventh consecutive weekly increase in the rig count. The total rig count, which includes oil and miscellaneous rigs, also rose by 10 to 1,009.

Despite increases during the week, natural gas prices were very volatile, reaching lows not seen in seven years. Natural gas prices varied significantly during the report week, with prices at the Henry Hub in Erath, Louisiana, falling below $2 for the first time in more than 7 years and its lowest level in nearly 8 years. On September 4, heading into the Labor Day weekend, prices at the Henry Hub closed at $1.84 per MMBtu, the lowest level since December 6, 2001. Following the long weekend, the spot price at the Henry Hub rebounded by 59 cents or 32 percent, closing at $2.43 per MMBtu on Tuesday, September 8. By the close of the report week, prices gained another 29 cents, closing at $2.72 per MMBtu. Over the week, changes in prices in the lower 48 States ranged between 33 cents and 65 cents, with no locations showing a decrease. However, prices remain at historical lows. EIA’s Short-Term Energy Outlook projects an average September price of $2.35 per MMBtu at the Henry Hub, as moderate temperatures and robust supply push prices lower.

Prices throughout the country mirrored the pattern at the Henry Hub. Prices at most market locations fell below $2 per MMBtu on Friday, September 4. However, the exceptions to the below $2-price level occurred in the Northeast and Western United States. Natural gas at California locations generally traded above $2, with the Pacific Gas & Electric Citygate recording the highest price of $2.63 on Friday. Some trading locations in the Rocky Mountains - where prices generally are lower than other areas in the lower 48 States—remained above $2 per MMBtu on Friday. Prices generally rose in trading since Friday.

Despite large increases during the report week, prices remain at historical lows. During the past few weeks, prices at the Henry Hub have been below $3 per MMBtu, levels which have not been seen since August 2002. Prices at most trading points in the lower 48 States closed below $3 on Wednesday, with exceptions in the Northeast, Florida, and California. Prices are highest at the Florida Gas Transmission Citygate trading area, increasing by 65 cents to $3.35 per MMBtu during the report week, likely as a result of temperatures in the 80s.

At the NYMEX, the price of the October 2009 contract rose to $2.829, an increase of 11.4 cents or 4 percent. Intraweek trading of the contract displayed patterns somewhat similar to, though not as pronounced as, the spot prices. On Thursday, September 3, prices for the October 2009 contract closed at $2.508, rising every subsequent trading day until Wednesday. However, the 12-month strip (the average of contracts from October 2009-September 2010) fell from $4.827 to $4.793 during the week. From Wednesday to Wednesday, only the October and November contract prices rose, with the rest of the 12-month strip falling between 4.1 cents and 7.5 cents. Significant differentials between the spot price and prices of winter contracts provide a significant incentive to inject natural gas into storage. At $2.72 per MMBtu, the price of natural gas at the Henry Hub is almost $2 per MMBtu less than the average of the winter contracts (November 2009-March 2010) of $4.668.

Working natural gas in storage rose to 3,392 Bcf, following an implied net injection of 69 Bcf for the week ending September 4 (see Storage Figure). The injection is slightly higher than both the 5-year (2004-2008) injection of 67 Bcf, and last year’s injection of 63 Bcf. Working gas in storage is now 17.1 percent greater than last year’s level, and 17.4 percent greater than the 5-year average. Storage levels on August 31 set a new record at about 3,353 Bcf, which is almost 300 Bcf higher than the highest recorded August level of 3,071 Bcf in 1990. According to the Short-Term Energy Outlook, storage levels at the end of the injection season will set a new record at 3,842 Bcf.

Temperatures during the storage report week were mostly mild, and somewhat cooler than normal. The temperature for the week in the United States as a whole averaged 70.3 degrees, or about 1 degree cooler than the normal temperature, and 3 degrees cooler than the same period last year (see Temperature Maps and Data). Most Census Divisions recorded temperatures cooler than normal, with notable exceptions in the Mountain and Pacific Divisions, which recorded temperatures approximately 5 and 7 degrees warmer than the normal temperature, respectively.

EIA Releases September 2009 Short-Term Energy Outlook. On September 9, EIA released the September 2009 Short-Term Energy Outlook (STEO), which includes forecasts through the end of 2010. EIA expects that the Henry Hub price of natural gas will average $2.25 per MMBtu in October 2009, which is the lowest monthly average spot price since September 2001. Prices are projected to bottom out in October, and then rise through February 2010, averaging $4.59 per MMBtu in February, and fall from March through August 2010. Additionally, the STEO projects that working gas in storage will set a record at 3,842 Bcf by the end of the current natural gas injection season. This level is 277 Bcf greater than the previous record high of 3,565 Bcf recorded for October 2007. In 2010, EIA expects production will drop to about 57 Bcf per day, about a 3.4 percent decline from the 2009 level of about 59 Bcf per day. The STEO indicated declining production through the end of 2009, resulting from curtailed drilling activity, as well as record-high storage levels. The STEO projects that liquefied natural gas (LNG) imports will increase to 460 Bcf in 2009 and 660 Bcf in 2010, compared with 350 Bcf in 2008. The September 2009 STEO can be accessed at http://www.eia.doe.gov/emey/steo/pub/contents.htm.

EIA Initiates Monthly Reporting on Carbon Emissions. EIA recently initiated monthly reporting on carbon dioxide emissions. Estimates are now available in the Monthly Energy Review (MER) as well as in the Short-Term Energy Outlook (STEO), which includes monthly forecasts through the end of 2010. According to the MER data, emissions from natural gas in the United States were 80 million metric tons during May 2009, which is about 19.4 percent of the total of carbon emissions from coal, natural gas, and petroleum. As a share of the total of carbon emissions, natural gas shows a strong seasonal pattern, increasing during the winter heating season, and falling in the spring and summer. Total carbon emissions from natural gas for the first five months of 2009 were 560 million metric tons, compared with 584 million metric tons for the first 5 months of 2008, and 565 million metric tons for the first five months of 2007. The decline is likely the result of reduced demand from the weakened economy. The STEO predicts that the total level of natural gas carbon emission for 2009 will be 1,216 million metric tons, which is about a 2.5 decrease from the 2008 level of 1,247 million metric tons. Long-term projections for carbon emissions are available in EIA’s Annual Energy Outlook.

FERC Releases 2008 State of the Markets Report. The Federal Energy Regulatory Commission (FERC) released on Wednesday, September 2, a report detailing natural gas and electric power markets in 2008. The report gives an overview of natural gas markets, production, and infrastructure; as well as electricity trading, capacity markets, and power transmission. Overall, dramatic increases in wholesale natural gas and electricity prices during the first half of 2008 and a subsequent turnaround during the second half characterized the year. The annual average of both natural gas spot prices and on-peak electricity prices was higher in 2008 than in 2007 at all market locations. FERC said in its report that market fundamentals alone do not explain the natural gas price spikes during the summer of 2008, as there were no major supply disruptions in the first half of the year. Furthermore, growth in demand was concentrated in January and March 2008, while prices continued to rise in April and May. FERC attributed some of the increase in natural gas prices in the first three months of 2008 to a decline in storage during the heating season. The report also noted that growth in production has been concentrated in unconventional natural gas fields, such as shale formations, tight sands, and coalbed methane formations. FERC cited EIA estimates of unconventional production, which comprised 61 percent of total onshore production in the lower 48 States. In addition, FERC noted the increased role of financial participants in natural gas and electric power markets. According to the report, the volume of trading of financial natural gas products on the Intercontinental Exchange was roughly 34 times that of the physical market for the first 10 months of 2008. The volume of financial natural gas trading decreased at the end of 2008, probably because of turmoil in financial markets. By December, the ratio of trading volume to the physical market had shrunk to 22:1. The impact of the financial crisis was evident in other areas, FERC noted, as several energy companies announced they would reduce capital expenditures in 2009 as a result of reduced access to capital. FERC’s report also notes the unprecedented expansion of natural gas infrastructure, citing EIA estimates of 43.9 Bcf of pipeline capacity in 2008, which is close to three times the capacity added in 2007. This report is available at http://www.ferc.gov/market-oversight/st-mkt-ovr/2008-som-final.pdf

• Interstate pipeline companies issued many notices of restrictions in services before Labor Day, as industrial sector demand was expected to drop during the holiday weekend. This decrease in demand added to the growing surplus of supplies on pipeline systems and in storage fields, reducing pipeline companies’ flexibility to handle imbalances on their systems. For example, citing high working gas inventory levels, Texas Gas Transmission, LLC, announced to shippers that the pipeline will be unable to accept interruptible storage injections effective September 5 until further notice. Any supplies currently on the system as a result of imbalances in scheduled receipt and deliveries must be cleared by September 30, according to the pipeline company.
  
• As a result of the abundance of supplies, many interstate pipeline companies have simply notified shippers of difficult operating conditions instead of instituting penalty situations provided for in their tariffs. Gulf South Pipeline, LP, on September 4 requested that all shippers balance their transportation and storage contracts by conforming receipts into the system with deliveries out of the system, and to receive and deliver quantities at a uniform hourly rate of flow “as practicable.” El Paso Natural Gas Company told shippers before the weekend that it is currently experiencing a potential high linepack condition as a result of actual takes below scheduled quantities and receipts from its supply basins in excess of scheduled deliveries. Both pipeline companies noted that penalties for imbalances would be instituted if conditions worsened. These notices followed service restrictions previously announced by several other companies such as ANR Pipeline Company and Columbia Gas Transmission Corporation.
  
• ANR Pipeline on September 9 said maintenance will begin at its Bridgman Compressor Station located in Michigan. The maintenance will require changes to capacity levels in the pipeline’s Northern Fuel Segment (ML-7) in the State. For example, capacity of meters near St. Johns, Michigan, will be reduced by 100 million cubic feet (MMcf) per day to 1,165 MMcf per day. Based on current nominations, ANR anticipates that the above reduction will result in the curtailment of interruptible services.
  
• ANR Pipeline on September 4 posted restrictions in service for its Southeast Mainline, which extends from Louisiana northward to Michigan. The company has begun engine maintenance at several compressor stations along the pipeline route, which has resulted in the following capacity reductions: 185 MMcf per day (leaving 1,134 MMcf per day available) for September 14; 320 MMcf per day (leaving 999 MMcf per day available) for September 15; 45 MMcf per day (leaving 1,274 MMcf per day available) from September 16 — 20; 225 MMcf per day (leaving 1,094 MMcf per day available) for September 21; and 65 MMcf per day (leaving 1,254 MMcf per day available) from September 22 — 30.

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.