• With little impact on production in the Gulf of Mexico from Hurricane Ida and moderate temperatures in many parts of the country, natural gas spot prices decreased sharply this report week (November 4-11). The Henry Hub spot price decreased by $0.90 to $3.59 per million Btu (MMBtu).



• At the New York Mercantile Exchange (NYMEX), futures prices also moved lower as the threat of an interruption in supplies from the hurricane passed. The futures contract for December delivery decreased by $0.22 on the report week to $4.503 per MMBtu.



• Working gas in underground storage as of last Friday (November 6) is estimated to have been 3,813 billion cubic feet (Bcf), a new record high which is 12 percent above the 5-year (2004-2008) average. Implied net injections of natural gas into underground storage totaled 25 Bcf during the week covered by the storage report.



• The price of crude oil decreased by about 1 percent during the report week. The West Texas Intermediate (WTI) crude oil price ended trading on Wednesday at $79.16 per barrel (or $13.65 per MMBtu).



• Although the Natural Gas Weekly Update is typically released on Thursday, this week’s report is being released 1 day later than its regularly scheduled release because of the Veteran’s Day holiday. While weekly price changes discussed in this report cover the Wednesday-Wednesday period, information from Thursday’s trading is also provided.

Price decreases occurred at all markets in the lower 48 States, with most declines hovering around $1 per MMBtu. During the report week, the most significant market event was Hurricane Ida. The storm forced evacuations from platforms in the Gulf of Mexico before making landfall on the Alabama coast on Tuesday morning (See Market Trends below). Hurricane Ida’s damage to energy infrastructure appeared to be minimal. Production has returned to near-normal levels, likely contributing to this week’s overall price decline. Continuing concerns about record levels of storage and moderate temperatures in the East also likely contributed to lower prices. The price at the Henry Hub during the report week decreased by $0.90 to $3.59 per MMBtu, about 20 percent. In trading yesterday (Thursday, November 12), the Henry Hub price fell an additional $0.35 per MMBtu.

In the Gulf of Mexico production region, including Louisiana and East Texas, the largest declines on the report week occurred on Friday, November 6, as traders prepared for moderate temperatures as well as regular reduction in industrial load for the weekend. During trading that Friday, the Henry Hub price declined $0.36 per MMBtu. The Henry Hub price then decreased in lesser increments for the following 4 trading days, eventually falling to an average price of $3.24 per MMBtu on Thursday (November 12), which was the lowest price at the Henry Hub since October 6 of this year. Elsewhere at markets located in States surrounding the Gulf of Mexico, price decreases during the week were generally between $0.92 and $0.98 per MMBtu. The price at the Houston Ship Channel in East Texas decreased by $0.92 on the week to $3.54 per MMBtu, while the price at Transcontinental Gas Pipe Line (Transco) Station 65 in Louisiana decreased by $0.98 to $3.57 per MMBtu.

In the Northeast, prices decreased by as much as 22 percent, as warmer-than-normal temperatures limited demand for natural gas for space heating. Despite the presence of a Nor’Easter moving up the Atlantic Coast during the latter part of the week, temperatures in the Northeast were warmer-than-normal. In fact, early in the report week, temperatures climbed well into the 60s, reducing the need for supplies to meet space-heating demand and contributing to the downward price movements. Most points in the Northeast region posted declines of more than $1 per MMBtu on the week. For delivery in Zone 6 into New York off Transco, the price declined by $1.02 per MMBtu to an average of $4.01 per MMBtu by the end of the report week. After a further decline of $0.46 per MMBtu on Thursday, the Transco Zone 6 price was just $0.31 higher than the Henry Hub price. This low price differential suggested little seasonal demand in Northeast, as the Northeast’s price premium over Gulf of Mexico regional prices typically widens significantly with the advent of colder weather. Price spreads between the Northeast and other markets also suggested evidence of increased supply options for the Northeast, such as the new access to Rockies supplies at Lebanon, Ohio, through the Rockies Express Pipeline (REX).

Wintry weather in parts of the West likely limited price declines in the Northwest, Rockies, and California. The Pacific Gas and Electric (PG&E) Citygate in Northern California had the highest spot price in the country yesterday at $4.09 per MMBtu, as colder-than-normal temperatures have moved into Northwest. The need for increased natural gas supplies to meet demand in the power sector in the Northwest and Northern California may also have limited price declines for Rockies supply to these regions. Both the Columbia Nuclear Generating Station and the Centralia Power Station experienced unplanned outages, according to BENTEK Energy, with natural gas-fueled power plants likely replacing lost generating capacity equaling about 1,861 megawatts. The price for supplies delivered to Kingsgate, Washington, during the report week decreased $0.76 to an average of $3.70 per MMBtu. On Kern River Pipeline in Utah (for delivery into California) the price decreased $0.88 to an average of $3.29 per MMBtu.

At the NYMEX, the price of the near-month contract for December delivery decreased $0.22, or nearly 5 percent, during the report week to $4.503 per MMBtu. The decrease occurred amid continuing concerns over the abundance of natural gas in storage, which has reached a record high this fall, as well as continuing moderate temperatures in some areas of the country. Like other futures contracts this fall, the December contract is trading at a price level substantially lower than the settlement prices of contracts for comparable months over the last 2 years. The December 2008 and December 2007 contracts expired at $6.89 per MMBtu and $7.20 per MMBtu, respectively.

The price of the 12-month strip, which is the average for futures contracts over the next 12 months, decreased by $0.13 to $5.19 per MMBtu since last Wednesday. Beginning with the near-month contract, NYMEX contract prices increase in relatively small increments through the entire 12 months of the strip. As a result, the highest-priced contract in the 12-month strip is for next November, which as of yesterday was priced at $5.86 per MMBtu.

Working natural gas in storage totaled 3,813 Bcf as of Friday, November 6, 2009, according to EIA’s Weekly Natural Gas Storage Report (see Storage Figure). This week’s aggregate level of working natural gas in storage sets another new record for underground storage inventories, which continued to increase with an estimated net injection of 25 Bcf. The level of aggregate storage first exceeded the previous record on September 30 and has pushed the record higher in each of the following 7 weeks. The former historical high for aggregate inventories prior to this fall was 3,565 Bcf, recorded at the end of October 2007. Additionally, this week’s report establishes new record-high levels of storage for each of the three regions specified in the report.

The implied net injection of 25 Bcf was smaller than the estimated injection of 54 Bcf last year during the comparable week, as well as the 5-year average injection of 30 Bcf. As a result, the difference between current levels of supplies in underground storage and last year’s level decreased to 350 Bcf, or 10.1 percent. The difference between the level of current storage inventories and 5-year (2004-2008) average for this time of year is 409 Bcf, or 12 percent.

Injection Season Summary

Storage Levels Reach New Highs During the 2009 Injection Season.

• Several records marked the 2009 injection season, with higher-than-average total net injections and new record-highs of working gas in storage characterizing this injection season, as spot prices reached multi-year lows. Net injections during the season totaled 2.1 trillion cubic feet (Tcf), 7 percent higher that the 5-year (2004-2008) average injection, but fell short of last year’s total net injection by less than 1 percent.



• The 2009-2010 heating season (November 1-March 31) commenced with 3,792 Bcf of working gas in storage, the highest volume of natural gas available for winter months’ consumption ever recorded.



• Domestic production levels remained robust, exceeding both last year’s and the 5-year average production volume. Total domestic consumption of natural gas was lower than last year for the same time period by about 3 percent.



• Close-to-normal temperatures and a lack of hurricane activity in the Gulf of Mexico during the injection season further mitigated any shocks to the natural gas market.



• The arrival of colder-than-normal weather during the month of October appeared to push prices up somewhat, but without any lasting impact.

The average spot price at the Henry Hub for the 2009 injection season (April 1-October 31) was $3.52 per MMBtu, which was $6.17 lower than the previous season’s average price of $9.69 per MMBtu. During the 2009 injection season, the Henry Hub spot price peaked at $4.98 per MMBtu on October 22. However, prior to the October run-up, natural gas traded consistently below $4.50 per MMBtu. In fact, the spot price at the Henry Hub dipped to as low as $1.84 per MMBtu on September 4, the lowest price for this location in almost 8 years. Other areas of the lower 48 States also saw lower spot prices, although price differentials between trading locations decreased compared with previous years. This was particularly the case for spot locations in the Rocky Mountains, where prices stabilized as the Rockies Express Pipeline came into service. This new pipeline allowed producers to ship significantly higher volumes of natural gas to the midcontinent and to the east.

Natural gas prices were low during the injection season likely as a result of abundant natural gas supplies. Domestic production was robust throughout the season, with both the offshore producing areas mostly uninterrupted by hurricanes. In addition, unconventional resources provided an unexpectedly high volume of natural gas. Robust production allowed for an above-average volume of natural gas to be injected into underground storage. During the injection season, a total of about 2.1 Tcf of natural gas was injected into storage, 7 percent more than the 5-year average total injections for the season. The total volume of natural gas in underground storage exceeded the 3-Tcf threshold in July this year, the earliest this has ever occurred since record keeping began. In general, working gas stocks exceed the 3-Tcf mark sometime in October each year. Working gas stocks this year broke the all-time record high of 3,565 Bcf set in October 2007. As of the end of October 2009, stocks exceeded the previous record by about 227 Bcf or 6 percent, based on interpolated weekly data published in the Weekly Natural Gas Storage Report. As of October 31, working gas stocks stood at 3,792 Bcf or 98 percent of the estimated peak working gas capacity and 88 percent of the working gas design capacity for the lower 48 States.

Temperatures in the country were warmer than normal in 5 out of the season’s 7 months. However, temperature deviations from normal were on average within 2 degrees Fahrenheit, limiting natural gas consumption. Cooler-than-normal temperatures were recorded only in July and October for the United States as a whole. On a Census Division basis, temperature deviations from normal were comparable to those for the United States as a whole. However, in some instances, average monthly temperatures exceeded normal by as much as 5 degrees. Overall, natural gas consumption in the United States fell between April and August 2009 (the latest month for which consumption data are available) compared with the same time period last year by about 3 percent. (see Temperature Maps and Data)

EIA Projects Spot Prices Will Remain Around $5 per Mcf in Coming Months. EIA on November 10 released its latest Short-Term Energy Outlook. The natural gas spot price at the Henry Hub averaged about $4.12 per thousand cubic feet (Mcf) during October, which is $1.06 per Mcf more than the previous month’s level. The report projects that the monthly Henry Hub spot price will average $4.22 per Mcf in November, $2.60 per Mcf lower than the November 2008 price. Prices are expected to remain around $5 per Mcf in the upcoming months, owing to high storage levels and resilient domestic production. The projected Henry Hub annual average spot price is expected to increase from $4.03 per Mcf in 2009 to $5.01 per Mcf in 2010, as a result of improving economic conditions and a decrease in natural gas production. Total natural gas production is expected to increase by 2.8 percent in 2009 and then decline by 3.8 percent in 2010. Total natural gas consumption is expected to decrease by 1.9 percent in 2009 and again by 1.1 percent in 2010, reaching about 61.5 Bcf per day (Bcf/d). A large decline in electric power sector consumption in 2010 is expected to reverse 2009 consumption gains resulting from coal-to-natural-gas switching. This decline of electric generation use of natural gas in 2010 is projected to more than offset the combined increases in natural gas consumption in the residential, commercial, and industrial sectors.

Shut-in Production Recovers from Hurricane Ida. As of Thursday, November 12, about 2.7 percent of natural gas production in the Gulf of Mexico was shut in as a result of Hurricane Ida, according to the U.S. Minerals Management Service (MMS). Estimated Gulf of Mexico production is 7 Bcf/d. According to MMS, earlier during the week 27.5 percent of natural gas production had been shut in. At one point, 10 rigs were evacuated, but as of November 12, no rigs were evacuated. On November 10, EIA found that Ida (which has since been downgraded to a tropical depression) may have affected up to 27 processing plants. Temporary disruptions from processing plants in the immediate path of the storm totaled 2.8 Bcf/d, about 7 percent of Gulf processing capacity and 4 percent of total U.S. capacity. More information from MMS is available here: http://www.mms.gov/ooc/press/2009/press1112.htm

IEA Projects Plentiful Natural Gas Supplies, Growing Demand. The International Energy Agency (IEA) published its World Energy Outlook (WEO) on November 12, which projects natural gas will play an essential role in meeting the world’s sustainable energy needs through 2030. The report states that unconventional gas resources, in particular shale gas in North America, have transformed the market outlook for natural gas. The industry now stands ready to meet growing demand for the next several decades, according to the report. The WEO’s baseline forecast projects world natural gas will rise from about 106 Tcf in 2007 to about 152 Tcf in 2030, or 41 percent. IEA notes that the share of unconventional gas in total U.S. natural gas output jumped from 44 percent in 2005 to around 50 percent in 2008. In its baseline forecast, IEA projects an increase in this share of output to about 60 percent by 2030. IEA notes that a supply surplus is possible in the short-term as a result of North American unconventional gas production and the recession’s impact on demand. The WEO 2009 is available at: http://www.worldenergyoutlook.org/.

• Williams Companies announced on November 11 to all of Transcontinental Pipeline’s shippers that the Williams Mobile Bay natural gas processing plant is back online and fully operational. The pipeline began accepting nominations from the plant and expects Alabama offshore production to continue to increase. The processing plant shut down October 27.



• Northwest Pipeline announced an operational flow order on Wednesday, November 11, as a result of operational issues at its Willard compressor station in Oregon. Northwest reduced the capacity at the Willard compressor station to 480 MMcf per day (MMcf/d) from 533 MMcf/d until November 25, 2009.



• REX’s East leg to Clarington, Ohio, was placed into service on November 11 with 221 MMcf/d of natural gas flowing east of Lebanon, Ohio.



• El Paso Natural Gas Company issued an update to a force majeure that the company initially declared on November 5. A pipeline rupture on Line 1102, north of the Amarillo, Texas, compressor station, necessitated the initial force majeure. According to the update, the pipeline can now accept receipts from the Cliffside Helium Extract receipt point in Texas as long as the receipts from the plant can be delivered to Natural Gas Pipeline Company.



• Gulf South Pipeline Company on Tuesday, November 10, suspended all processing and began plant bypass of natural gas as a result of unplanned maintenance commencing that day at the North Terrebonne Gas Plant in Louisiana. The company set capacity at all of the meters associated with the plant to zero.

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.