Natural Gas Weekly Update - Printer-Friendly Version
Natural Gas Weekly Update Text
Released: May 6, 2010 at 2:00 P.M.
Next Release: Thursday, May 13, 2010
Overview (For the Week Ending Wednesday, May 5, 2010)

  • Since Wednesday, April 28, natural gas spot prices fell at most market locations across the lower 48 States, with decreases of as much as 7 percent at some points. The Henry Hub natural gas spot price fell $0.19 per million Btu (MMBtu), or about 5 percent, to $4.00 per MMBtu. Prices at the Florida Citygate posted the only increase in the lower 48 States during the report week.

  • At the New York Mercantile Exchange (NYMEX), the futures contract for June delivery at the Henry Hub settled yesterday, May 5, at $3.991 per MMBtu, declining by $0.24 or about 6 percent since the previous Wednesday.

  • Natural gas in storage was 1,995 billion cubic feet (Bcf) as of April 30, about 19 percent above the 5-year (2005-2009) average. The implied net injection for the week was 83 Bcf.

  • The spot price for West Texas Intermediate (WTI) crude oil decreased by $3.22 per barrel since Wednesday, April 28, to $80.00 per barrel or $13.79 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

Since last Wednesday, April 28, natural gas spot prices decreased at market locations across the lower 48 States. As temperatures moderated throughout most of the lower 48 States, and natural gas production remained robust, natural gas prices fell, with declines ranging between 3 and 7 percent at most market locations. Additional factors possibly contributing to widespread price decreases include falling crude oil prices and declines in natural gas futures prices. Renewed confidence in the sufficiency of natural gas supplies following the release of EIA’s Weekly Natural Gas Storage Report, and its revised production estimates last Thursday, April 29 may have also contributed to price declines, as working gas stocks and revised production estimates exceeded market expectations. Prices declined with natural gas consumption heading into last weekend, but recovered somewhat in trading since Monday, May 3, as consumption increased during the week. However, these price gains were not sufficient to offset the earlier price decreases. On the week, price declines at most markets generally ranged between $0.06 and $0.33 per MMBtu. The Pacific Gas and Electric market location in southern California posted the largest decline of $0.33 per MMBtu, or 7 percent.

In contrast to other market locations, prices on Florida Gas Transmission Zone 1 trading point posted the only net increase on the week in the lower 48 States, rising $0.58, or 13 percent, to $5.04 per MMBtu. An early heat wave in Florida likely contributed to increased cooling demand for natural gas and to rising natural prices in the State. Since May 2, temperatures have reached daily highs of more than 90 degrees, which is about 8 to 12 degrees above normal for this time of year in the State. At $5.04 per MMBtu, prices at the Florida Citygate were the highest in the lower 48 States in trading on Wednesday, May 5.

Natural gas consumption in the lower 48 States fell by 10 percent since last week, with significant declines in the residential and commercial market sectors more than offsetting gains in the power and industrial sectors, according to BENTEK Energy Services, LLC. Moderating temperatures likely contributed to falling demand in the residential/commercial sector, in which natural gas consumption declined about 39 percent on the week, or about 24 percent since last year at this time, according to BENTEK estimates. In contrast, consumption in the electric power and industrial sectors increased 4.3 and 0.4 percent on the week, respectively. Compared with year-ago levels, consumption in the electric power sector decreased 6 percent, while the industrial sector reported an increase of 7 percent. This increase in the industrial sector suggests that the economic recovery could be contributing to increased industrial activity and increased demand for natural gas. All else equal, continued gains in natural gas consumption within the electric power and industrial sectors could slow or halt further declines in natural gas prices.

Natural gas supplies increased slightly since last week, as a result of increases in production and sendout of liquefied natural gas (LNG). Natural gas supplies increased by about 0.3 percent since last week, according to BENTEK. Natural gas production increased about 0.2 percent on the week, while LNG sendout rose 32 percent. The continued robustness of domestic natural gas production suggests that the natural gas market remains well-supplied overall. Canadian imports declined by 3 percent on the week. Current U.S. natural gas production and total pipeline imports are about 1 percent and 12 percent above year-ago levels, respectively. Total LNG sendout is 43 percent lower compared with this time last year. Offshore natural gas production was not directly affected by the oil spill in the Gulf of Mexico and related recovery efforts, with about 6 million cubic feet per day of offshore production shut-ins, comprising less than 0.1 percent of total natural gas production in the Gulf.

Natural gas spot prices at the Henry Hub are trading above year-ago levels. At $4.00 per MMBtu in trading on May 5, prices at the Henry Hub were 9 percent, or $0.33 per MMBtu, above year-ago levels. Natural gas spot prices at most markets elsewhere in the lower 48 States were trading at about 5 to 37 percent above year-ago levels, possibly reflecting the recovery in the industrial sector during 2009, and increases in crude oil prices over the same period. The WTI crude oil price exceeded last year’s level of $53.81 per barrel, or $9.28 per MMBtu, by nearly 49 percent.

Spot Prices

At the NYMEX, the 12-month (June 2010 through May 2011) strip of contract prices for future natural gas delivery fell $0.25 per MMBtu, or about 5 percent, during the report week. On the week, the price of the June contract fell $0.24 per MMBtu, or about 6 percent. Overall, prices for the 12-month futures strip (May 2010 through April 2011) averaged $4.84 per MMBtu as of Wednesday, May 5. Price declines since last Wednesday were largest for the July delivery contract, with each successive contract posting progressively smaller declines on the week. Natural gas futures prices for delivery during the injection season months averaged $4.14 per MMBtu, while prices for delivery during the heating season (November 2010 through March 2011) averaged $5.31 per MMBtu, a premium of $0.14 to the Henry Hub spot price. This premium suggests natural gas suppliers have an incentive to replenish inventory levels of natural gas held in storage.

Wellhead Prices Annual Energy Review
More Price Data

Working natural gas in storage increased to 1,995 Bcf as of Friday, April 30, according to EIA’s Weekly Natural Gas Storage Report (see Storage Figure). The implied net injection was 83 Bcf, compared with last year’s net injection of 87 Bcf and the 5-year (2005-2009) average of 71 Bcf for the report week. Relatively mild temperatures in most regions of the lower 48 States likely contributed to the larger-than-normal net injections into storage. Working gas inventories were 97 Bcf above year-ago levels and 315 Bcf above the 5-year average level. Working gas in storage exceeded the 5-year average for this time of year in each of the three storage regions. However, working gas stocks in the Producing region are 61 Bcf, or about 7 percent, below last year’s level. This marks the fifth consecutive week that the year-on-year storage deficit has declined in the Producing region.

At 1,995 Bcf as of April 30, working gas stocks are at record levels for this time of year. Prior to 2010, working gas stocks exceeded the 1,900-Bcf level during April one other time, when working gas stocks were 1,904 Bcf for the report week of April 28, 2006. At 330 Bcf, the West region also established a new record level, exceeding the 308 Bcf reported for April 24, 2009. At 760 Bcf, the Producing region is 45 Bcf below the record level that also was established on April 24, 2009. Working gas stocks were 54 Bcf below the record level of 959 Bcf established on April 28, 2006.

Temperatures were generally cooler than normal in most Census Divisions in the lower 48 States during the week ended April 29. Based on the National Weather Service’s degree-day data, temperatures in the lower 48 States during the week ending April 29 were, on average, about 1.3 degrees cooler than normal and 5.7 degrees cooler than last year (see Temperature Maps and Data). Temperatures were warmest in the West South Central, South Atlantic, and East South Central Census Divisions, where the average temperatures ranged between 60.0 and 66.3 degrees. Elsewhere in the lower 48 States, average temperatures ranged between 49 and 55 degrees. In contrast to the rest of the lower 48 States, the East North Central and West North Central reported slightly warmer-than-normal temperatures.

Storage Table

More Storage Data
Other Market Trends

Response to the Deepwater Horizon Oil Spill Continues. On April 20, 2010, an explosion occurred aboard the Deepwater Horizon mobile offshore drilling unit located about 50 miles southeast of Venice, Louisiana. Crude oil continues to leak from the well pipe, located on the Gulf of Mexico sea floor, at an estimated rate of approximately 5,000 barrels per day, according to Department of Energy (DOE) Situational Report published on May 5. Some of the latest facts include:

  • BP Plc, the company on whose behalf Transocean was drilling the exploratory well, announced on May 4 that it began drilling a relief well to intercept the oil leak. The company has also reported that it will deploy an oil containment canopy in less than a week.

  • In a conference call held on May 4, a Coast Guard official indicated that this incident is the first time that they have dealt with a leak at this depth. The Coast Guard official also indicated that the depth allows the oil to mix with water and interact with the sea surface more easily, which can cause the oil slick to persist for a longer period of time.

  • In a conference call held on May 4, a National Oceanic and Atmospheric Administration (NOAA) official estimated that about 30 percent of this type of oil degrades and evaporates in about 4 days.

  • NOAA reported on May 4 that winds have shifted, pushing the spill area to the west, toward Plaquemines Parish, Louisiana, and away from the coast.

  • Interstate pipelines have not reported problems at their facilities or suppliers due to the oil spill in the Gulf. Furthermore, as of May 5, petroleum refinery operations in the region have not reported any problems.

  • As of May 5, 2010, shipping channels and ports remained open in the Gulf Coast Region. Vessels are being encouraged to avoid the spill area and any vessels that have oil on their hulls will be cleaned at four separate stations, according to DOE.

  • As of May 5, 2010, two platforms have shut in production and one remains evacuated. As a result, approximately 6.2 million cubic feet of natural gas is shut-in, according to the Minerals Management Service.

  • The oil spill has the potential to impact several electric power generation facilities in the region, according to DOE. A few power plants have been identified as drawing cooling water directly from the Gulf of Mexico or adjacent salt water sources. If the water supply for these facilities becomes contaminated with oil, cooling water systems could be damaged.

  • LNG that flows into the Gulf Coast is not expected to be an issue because LNG imports to this area are minimal. At the U.S. level, LNG imports account for only about 2.0 percent of total U.S. gas supply. Most LNG to the United States is imported at terminals along the East Coast. In 2008, total LNG imports into Gulf Coast terminals were 24 Bcf, about 7.0 percent of total LNG imports.

  • Favorable weather conditions allowed responders to conduct a successful controlled burn operation on May 5, according to the Coast Guard.

  • Natural Gas Transportation Update

    • Alliance Pipeline Inc. experienced unforeseen mechanical difficulties while performing inspections at the Tampico compressor station in Illinois on May 4. Although Alliance originally scheduled the pipeline outage to remain in effect for 36 hours, the company has extended past the outage until further notice.

    • Florida Gas Transmission Company issued an overage alert as a result of flows increasing significantly following a demand surge in Florida. Flows on Gulfstream Pipeline and Florida Gas Transmission are close to full utilization, while the Cypress Pipeline reported that its line is flowing at capacity. Cypress transports gas from the Elba Island LNG terminal to Florida markets. Weather forecasts indicate that Florida temperatures will remain high for the next few days.

    • Gulf South Pipeline Company notified its customers that it has rescheduled pipeline maintenance on pipeline Index 130 in Lawrence County, Mississippi. Originally planned to begin on April 14, maintenance will begin on May 17 and continue for 3 days. The pipeline does not expect the maintenance to affect customers.

    • Gulf South also notified its customers that it will be performing planned maintenance at the Carthage compressor station in Panola County, Texas beginning June 14. The maintenance, which is expected to last 10 days, will result in capacity reduction of 30,000 decatherms.

    • Northwest Pipeline is currently performing maintenance near the Burley, Meacham, and Mountain Home compressor stations in Oregon. The maintenance was scheduled to end on May 7, but Northwest now expects the operations at the three locations to conclude today, May 6.

    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.