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Natural Gas Weekly Update

Natural Gas Weekly Update Text
Released: September 24, 2009 at 2:00 P.M.
Next Release: October 1, 2009
Overview (For the Week Ending Wednesday, September 23, 2009)

  • Natural gas prices posted across-the-board increases at both the spot and futures markets since last Wednesday. Spot prices rose at almost all market locations in the lower 48 States, with increases ranging between 2 and 23 cents per million Btu (MMBtu). The price at the Henry Hub spot market rose to $3.43 per MMBtu, increasing by 15 cents or about 5 percent.

  • At the New York Mercantile Exchange (NYMEX), the natural gas futures contract for October delivery increased by 10 cents to $3.860 per MMBtu. The November contract also posted gains this week, albeit much smaller at 4 cents per MMBtu.

  • As of Friday, September 18, working gas in underground storage rose to 3,525 billion cubic feet (Bcf), with inventories exceeding the 5-year (2004-2008) average for this time of year by 16 percent. Inventories continue to be on pace to exceed the all-time high level of 3,565 Bcf recorded at the end of October 2007.

  • The price of the West Texas Intermediate (WTI) crude oil contract declined by $3.76 per barrel on the week to $68.74 per barrel or $11.85 per MMBtu.

  • The number of natural gas rigs drilling in the United States increased by 6 to 705 rigs for the week ended September 18, 2009, according to Baker Hughes, Incorporated.

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 increased on the week at all market locations, except for a few trading points in the western half of the country. Increases ranged between 2 and 23 cents per MMBtu, although a majority of the trading locations saw prices rise by 12 to 18 cents on the week. However, prices at a number of trading locations in the West decreased this week, most notably trading locations serving California markets. For example, the Malin trading location, which serves northern California markets, ended trading at $3.54 per MMBtu yesterday, a decrease of 7 cents or about 2 percent on the week. Similarly, the Pacific Gas and Electric Citygate price fell 9 cents to $3.93 per MMBtu.

Despite low cooling demand for much of the report week, Northeastern markets registered the largest price increases since last Wednesday. Despite dampened demand this week, prices in this area of the country posted the largest increases. Algonquin Citygate, which serves New England markets, registered the highest increase in the lower 48 States this week of 23 cents or roughly 6 percent. Prices at other Northeast trading locations rose by an average of nearly 6 percent. This average includes Transcontinental Pipeline’s Zone 6, which serves New York City, and Dominion Pipeline’s delivery point into the northern areas of the South Atlantic Census Division.

Price increases above 5 percent also occurred in some markets along the Gulf of Mexico coast, including a few delivery points off the Transcontinental Pipeline in the area. Transcontinental’s Stations 65 and 85, which serve markets in Alabama, Mississippi, and Louisiana, both rose by 17 cents per MMBtu or about 5 percent. As of yesterday, these two points traded at $3.48 per MMBtu or $1.16 higher than at the beginning of this calendar month. The Henry Hub location in Erath, Louisiana, rose on the week by 15 cents or about 5 percent to $3.43 per MMBtu, also posting a net increase of more than $1 since September 1. Overall in the lower 48 States, spot prices averaged $3.49 per MMBtu yesterday, with most of the points trading between $3.30 and $3.60 per MMBtu.

Spot Prices

At the NYMEX, the price of the October 2009 contract rose by 10 cents since last Wednesday to $3.860 per MMBtu. With only a few trading sessions left in its tenure as the near-month contract, the price of October 2009 contract has exhibited an increasing trend since September 11. The October contract’s total net gain since becoming the near-month contract is 83 cents per MMBtu or 27 percent.

The price of the November 2009 contract also rose on the week, albeit by a significantly smaller amount. Since last Wednesday, the November contract increased by 4 cents or less than 1 percent, ending the report week at $4.754 per MMBtu. The November 2009 contract is the first contract for delivery during the upcoming heating season. In yesterday’s session, the heating season strip traded at $5.471 per MMBtu. All of the contracts in the strip (with the exception of the November contract) were trading well above $5 per MMBtu. Still, yesterday’s price of the heating season strip remains about 35 percent lower than last year at this time. In fact, as of yesterday, the heating season strip traded at a lower level than those recorded each year at the same time since 2004.

Wellhead Prices Annual Energy Review
More Price Data

Working gas in storage increased to 3,525 Bcf as of Friday, September 18, according to EIA’s Weekly Natural Gas Storage Report (see Storage Figure). The implied net injection of 67 Bcf was about 3 percent below the 5-year average (2004-2008) net injection of 69 Bcf, but about 24 percent above last year’s net injection of 54 Bcf for the same report week. As of September 18, working gas stocks exceed the 5-year average by 16 percent and last year’s levels by 17 percent.

Working gas stocks have reached the fifth-highest weekly level since the weekly natural gas storage data began. With about 6 weeks remaining in the current injection season, current working gas in storage is only 40 Bcf shy of the all-time high end-of-month stock level of 3,565 Bcf reached at the end of October 2007. Should the injections in the remaining 6 weeks match historical levels, stocks at the beginning of the heating season would reach 3,859 Bcf. This level would set a new record, exceeding the previous record by 294 Bcf.

Most Census Divisions in the lower 48 States registered slightly warmer-than-normal temperatures during the week roughly coinciding with the Weekly Natural Gas Storage Report. According to the degree-day data provided by the National Weather Service, average temperatures in the lower 48 States for the week ended September 17 were 1.6 degrees higher than normal. All of the Census Divisions recorded only slight average weekly variations from normal (see Temperature Maps and Data). The largest temperature deviation from normal occurred in the West North Central Census Division, where average weekly temperatures exceeded normal levels by 4.4 degrees. Middle Atlantic and West South Central were the only two Census Divisions that recorded lower-than-normal temperatures, registering 64.3 and 75.1 degrees, respectively.

Storage Table

More Storage Data
Other Market Trends

EPA Issues Final Mandatory Reporting of Greenhouse Gases Rule The U.S. Environmental Protection Agency (EPA) will require large emitters of heat-trapping greenhouse gases (GHG) to submit data under a new reporting system. The first annual reports will be submitted to the EPA in 2011 and cover calendar year 2010. The agency announced the final rule on September 22 and reported that the program will apply to about 10,000 emitters and will cover 85 percent of GHG emissions. The new reporting system will provide a better understanding of the sources of GHGs and guide the development of emission-reduction policies and programs. Additionally, the EPA noted that tracking their own emissions will enable businesses to compare their emissions to those of similar facilities and assist in reducing emissions. The new regulations will affect fossil fuel and industrial GHG suppliers, motor vehicle and engine manufacturers, and facilities emitting 25,000 or more metric tons of carbon dioxide equivalent per year. More information is available at http://www.epa.gov/climatechange/emissions/ghgrulemaking.html

Argonne National Laboratory releases Produced Water Volumes and Management Practices in the United States: Oil and natural gas production generated about 21 billion barrels (bbl) of water in 2007, according to a report the Department of Energy’s Argonne National Laboratory recently released. The report found that oil production generated 87 percent of produced water. Produced water, which surfaces during oil and natural gas production, is the largest by-product of production and a significant cost for producers. Production activity in Texas, California, Wyoming, Oklahoma, and Kansas comprised about 75 percent of total water produced. Texas alone contributed 7.3 billion bbl, or 35 percent of the total. The majority of water produced resulted from State and Federal onshore production activities. The report found that water produced from onshore wells is generally injected into producing formations to maintain pressure or into nonproducing formations for disposal. Federal offshore production accounted for about 3 percent of water generated. Most water produced from offshore wells is discharged into the ocean. The report also noted variations in data available from the States.

Natural Gas Transportation Update

  • Pacific Gas and Electric Company issued a system-wide operational flow order (OFO) for Wednesday, September 23, because of high inventory. The company imposed fines of $1.00 per decatherm (Dth) if customers’ supplies are not within 5 percent of daily usage. The following day (September 24), the pipeline increased the tolerance level to 12 percent and kept the $1.00 per Dth noncompliance charge.

  • Texas Gas Transmission, LLC (TGT) issued maintenance updates for a few of the system’s pipelines on September 21. According to the pipeline, maintenance on the Greenville lateral in Mississippi is progressing more rapidly than originally forecasted, which is expected to return the lateral to service by October 5, 2009. After testing is complete, capacity will increase to 380,000 MMBtu per day. In addition to the Greenville lateral maintenance, anomaly repairs at the Fayetteville lateral (located between Arkansas and Mississippi) have also progressed more rapidly than anticipated. TGT plans to return the Fayetteville lateral to service in two phases. The first phase will begin at Grandview and extend until Bald Knob. During these repairs, TGT will restrict deliveries to 50,000 MMBtu per day at each of the Bald Knob interconnects. Repairs for the first phase is expected to be complete by October 1, restoring to full capacity of 970,000 MMBtu per day. The second phase will extend between Bald Knob and Lula. TGT expects to return to a normal capacity of 805,000 MMBtu per day through Lula over a two-day period beginning October 7, 2009.

  • Questar Pipeline Company declared an OFO on Wednesday, September 23, as a result of high inventory in Questar’s Clay Basin storage located in Utah. The company is prohibiting in-kind imbalance payback to or from the pipeline and is requiring shippers and point operators to have production volumes aligned with scheduled nominations. Questar also announced that the maintenance at Oak Spring compressor station also located in Utah is progressing as scheduled and expects the main line 104 to return to normal capacity by September 25, 2009.

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.