Natural Gas

• Natural gas prices moved significantly lower at market locations across the lower 48 States during the report week. The Henry Hub spot price averaged $4.39 per million Btu (MMBtu) in trading yesterday, July 14, decreasing $0.37 compared with the previous Wednesday.
  
• At the New York Mercantile Exchange (NYMEX), the price of the futures contract for August delivery at the Henry Hub decreased in 4 out the 5 trading sessions during the report week. The near-month contract settled yesterday at $4.31 per MMBtu, about $0.26 lower than the previous Wednesday.
  
• As of Friday, July 9, working gas in underground storage was 2,840 billion cubic feet (Bcf), which was 10.7 percent above the 5-year (2005-2009) average. The implied net injection into storage was 78 Bcf.
  
• The spot price of West Texas Intermediate (WTI) crude oil increased on the week by $2.97 per barrel to $77.02, or $13.28 per MMBtu.

Price declines during the report week were widespread and significant in most markets, as prices reached levels not seen since May. On Wednesday, July 14, the Henry Hub natural gas spot price averaged $4.39 per MMBtu, which was about 7.8 percent lower than the average for the previous Wednesday. Price decreases across the country averaged 5.8 percent and ranged between $0.04 and $0.45 per MMBtu. Factors leading to the price declines this week included continuing strong U.S. production and high levels of natural gas in storage. The largest percentage declines occurred in the Northeast, as the hottest weather of the year subsided at the beginning of the report week and demand for natural gas as a fuel for electricity generation subsequently declined. The price yesterday for delivery in Zone 6 into New York off the Transcontinental Gas Pipeline was $4.92 per MMBtu, a decline of $0.42, or 7.9 percent, on the week. However, the weather became hotter in other parts of the country as the week progressed, limiting price declines in the Rocky Mountains and westward. In these regions, price decreases averaged only 4.4 percent. The price at the Opal, Wyoming trading point decreased $0.19 on the week to $3.60 per MMBtu. The one exception to the pattern of general price declines occurred for deliveries of spot natural gas into Florida. The spot price off of Florida Gas Transmission increased 7.1 percent to $5.74 per MMBtu, likely in response to warmer weather in the State.

Strong domestic production this week continued putting downward pressure on prices, which likely contributed to lower liquefied natural gas (LNG) imports. Contrary to expectations of production declines attributable to a reduction in drilling activity last year, domestic marketed production remains strong. BENTEK Energy Services, LLC estimates that U.S. marketed production averaged close to 61 Bcf per day during the report week. Overall supply levels during the report week were about 2.4 percent higher than last year, according to BENTEK estimates. EIA’s July Short-Term Energy Outlook projects that U.S. marketed production this month will reach 61.5 Bcf per day, or 3.2 percent higher than the level in July 2009. As a result of strong domestic production and lower prices, imports of natural gas are beginning to trend downward. During the report week, sendout from U.S. LNG import terminals averaged about 1 Bcf per day, or 23 percent lower than the comparable week last year. U.S. LNG sendout also has declined significantly since the first quarter of this year, when levels averaged 1.7 Bcf per day. LNG supplies likely have been directed to European and Asian countries, where LNG prices remain higher than those that have prevailed in the United States. According to estimates from Waterborne Energy, Inc. prices for LNG deliveries in the month of August are about $7.30 per MMBtu in Asia and $6.50 per MMBtu in Europe.

During the report week, moderately high demand for this time of year likely limited price declines at market locations across the lower 48 States. Total U.S. demand ended the report week at about 59.7 Bcf per day, but rose above 60 Bcf per day earlier in the week, according to BENTEK estimates. At these levels, demand was well below the average available supply, suggesting opportunities for injections into storage (see Storage section below). Overall demand on the week was 15.3 percent higher than the previous report week and 8.3 percent higher than the similar week last year. Temperatures above 100 degrees in parts of the South, as well as west of the Mississippi River, boosted natural gas demand in the electric power sector. Natural gas demand in this sector averaged about 28.4 Bcf per day during the report week, increasing 22 percent compared with the preceding week and about 11 percent over year-ago levels.

At the NYMEX, the price of the futures contract for August delivery settled yesterday at $4.31 per MMBtu. Yesterday’s settlement price was the lowest for the near-month since late May. During the report week, the contract price for August delivery declined about $0.26 per MMBtu, or about 5.7 percent, with some market participants citing high storage levels and a sluggish economy as reasons for the decline. The August 2010 contract is currently priced about 27 percent higher than the expiration price of $3.38 per MMBtu for the August 2009 contract. At the end of trading yesterday, the 12-month strip, which is the average for natural gas futures contracts over the next year, was priced at $4.84 per MMBtu, decreasing about $0.23, or 4.4 percent, since last Wednesday.

Working natural gas in storage increased to 2,840 Bcf as of Friday, July 9, according to EIA’s Weekly Natural Gas Storage Report (see Storage Figure). The implied net injection was 78 Bcf, compared with last year’s net injection of 88 Bcf and the 5-year average of 89 Bcf for the report week. Working gas inventories are currently 33 Bcf below year-ago levels and 274 Bcf above the 5-year average level. Working gas in storage has exceeded the 5-year average for this time of year in each of the three storage regions since March 26, 2010, or the last 16 weeks.

While natural gas stocks remain significantly above historical levels, the surplus relative to the 5-year average has diminished in recent weeks. The surplus relative to the 5-year average has declined, since last peaking on May 7, 2010, at 325 Bcf. The current report week marked the fourth consecutive week that the surplus relative to the 5-year average has fallen. The surplus in the East region has declined for 10 consecutive weeks, falling from 145 Bcf on May 7 to 47 Bcf as of July 9. Increases in the surplus relative to the 5-year average in the West and Producing regions during the same period partially offset these declines.

Warmer-than-normal temperatures — particularly in the East region — likely contributed to the smaller—than—normal net injection into storage. The below-normal net injection into storage on a national basis resulted from a slower-than-normal pace of injections in the East region during the report week. On a regional basis, net injections into storage for the week ending July 9 exceeded the 5-year average in the Producing region by 6 Bcf and matched the 5-year average in the West region. In contrast, injections in the East region were 17 Bcf, or 28 percent below the 5-year average. Significantly warmer-than-normal temperatures in the East storage region, as well as reduced pipeline imports of natural gas from Canada, likely contributed to below-average injections in the region.

Temperatures were generally close to normal levels in most Census Divisions in the lower 48 States outside the northeastern areas during the week ended July 8. Based on the National Weather Service’s degree-day data, temperatures in the lower 48 States during the week ending July 8 were about 76.0 degrees on average, or about 1 .4 degrees warmer than normal and 3.3 degrees warmer than last year at this time (see Temperature Maps and Data). Temperatures were warmest relative to historical levels in the New England, Middle Atlantic, and East North Central Census divisions, ranging between 5 and 9 percent above normal levels. Elsewhere in the lower 48 States, temperatures were within about 1 percent of historical levels, with the West North Central, South Atlantic, and East South Central reporting warmer-than-normal conditions, and the West South Central, Mountain, and Pacific Census divisions recording cooler-than-normal temperatures.

Abundant Supply and Relatively Low Prices Characterize Natural Gas Markets in 2009. EIA released the Natural Gas Year-in-Review 2009 on July 9. The report gives a broad overview of natural gas supply, demand, infrastructure, and storage during 2009. According to the Year-in-Review, marketed production in the United States reached its highest level since 1973 as a result of efficiency gains in drilling techniques, specifically in production from shale formations. Storage inventories hit an all-time high on both a national level and in each of the three storage regions. Prices during 2009 were relatively low, and declined from their 2008 levels across all sectors. The Henry Hub spot price averaged $4.06 per thousand cubic feet (Mcf) in 2009, compared with $9.12 per Mcf in 2008. Despite lower prices, natural gas consumption fell in the residential, industrial, and commercial sectors, likely the result of weather factors and the weakened economy. Although gains in the use of natural gas for electric power generation offset some of the losses in these sectors, overall natural gas consumption fell from 63.6 Bcf per day in 2008 to 62.6 Bcf per day in 2009.

Secretary Salazar Issues New Drilling Suspension. On July 12, 2010, U.S. Secretary of the Interior Ken Salazar issued a decision memorandum directing the Bureau of Ocean Energy Management, Regulation, and Enforcement (BOEM) to suspend the drilling activities and permit approval processes of oil and natural gas operators who use subsea blowout preventers (BOPs) or surface BOPs on floating facilities in the Outer Continental Shelf. The suspension could remain in effect through November 30. Secretary Salazar asserted that the suspension will allow the Administration to develop and implement additional well safety measures, as well as to determine the potential causes of the April 20 explosion on the Deepwater Horizon offshore drilling rig. In contrast to the moratorium Secretary Salazar issued May 28, which the Louisiana Federal District Court subsequently lifted on June 22, the new suspension applies to operators on the basis of drilling configurations and technologies rather than water depth. A question-and-answer document Secretary Salazar released provides more information regarding the new suspension.

• Enogex LLC Pipeline on July 14 reported its intention to end an outage on its Line 21 in Grady County, Oklahoma, as early as today, July 15. The pipeline company first reported an outage at one of its main gathering lines in the region on June 19. The outage has resulted in curtailments of production in Oklahoma, according to the pipeline company. Enogex cautioned that work will continue at the compressor station in Wilburton Junction in Oklahoma for an additional 5 days.
• ANR Pipeline Company on Thursday, July 8, began engine repairs at its compressor station in Joliet, Illinois, near Chicago. During the repairs, ANR will reduce flows at its interconnection with Natural Gas Pipeline of America to 42 million cubic feet (MMcf) per day from normal capacity of 90 MMcf per day until further notice. ANR expects the flow reduction to interrupt service to customers with non-firm contracts.
  
• Colorado Interstate Gas Company (CIG) on Thursday, July 8, took one engine out of service at its compressor station in Keyes, Oklahoma, for repairs. The company said that during the maintenance, work station capacity will fall from 215 MMcf per day to 200 MMcf per day. The work is expected to last through July 16.

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.