Natural Gas

• Price changes during the week were mixed, but in most areas, these changes were moderate. The Henry Hub price rose slightly from $3.73 per million Btu (MMBtu) on Wednesday, September 1, to $3.81 per MMBtu yesterday. The report week was shortened due to the Labor Day holiday.
  
• At the New York Mercantile Exchange, the price of the October 2010 futures contract rose about 5 cents, from $3.762 per MMBtu on September 1 to $3.814 per MMBtu on September 8.
  
• Working natural gas in storage as of Friday, September 3, was 3,164 Bcf, following an implied net injection of 58 Bcf, according to EIA’s Weekly Natural Gas Storage Report.
  
• The West Texas Intermediate crude oil spot price rose 68 cents from $73.97 per barrel, or $12.75 per MMBtu, to $74.65 per barrel, or $12.87 per MMBtu.
  
• The natural gas rotary rig count, according to data released by Baker Hughes Incorporated, rose by 4 to 977 as of September 3 (see “Other Market Trends”).

Price changes were moderate across the country, with relatively small increases in most areas and relatively small declines in most trading points in the Midcontinent, Midwest, and Northeast. The Henry Hub spot price rose slightly during the week, from $3.73 per MMBtu to $3.81 per MMBtu, without large movements during intraweek trading. Temperatures during the report week were relatively mild, ranging in the 60s and 70s in most parts of the United States, with average temperatures in some areas of Florida, Texas, Arizona, and California reaching into the 80s. The mild weather likely led to price declines in the Northeast; prices at the Transcontinental Pipeline’s Zone 6 trading point for delivery into New York City fell 16 cents during the report week, from $4.23 per MMBtu to $4.07 per MMBtu. Price decreases in the Northeast ranged from 2 cents to 22 cents; two trading points eked out small gains in price.

Declines in natural gas demand also likely put downward pressure on prices and possibly tempered price increases. Demand remained low on Monday, as a result of the Labor Day weekend, before rebounding somewhat on Tuesday, according to estimates by BENTEK Energy. During the report week ending Wednesday, September 8, total demand was down 8 percent from the previous week, a result of the mild weather and the Labor Day holiday. Demand for natural gas for power generation fell about 14 percent, and industrial demand fell about 3 percent from the previous week, according to BENTEK’s estimates. Compared with the comparable week last year, total demand was down about 2 percent. Prices remain higher than their levels at the same time last year; the Henry Hub price on September 8, 2009, settled at $2.43 per MMBtu. While working natural gas in storage remains above the 5-year (2005-2009) average, it is 218 Bcf below last year’s level.

The warm weather in Southern California may have contributed to price increases. The largest increase in California was at the Pacific Gas & Electric Citygate, where prices rose during the report week 13 cents from $3.71 per MMBtu to $3.84 per MMBtu. Demand for Rockies gas in Southern California may have also led to price increases in the Rocky Mountains as well, where increases ranged from 2 cents to 15 cents. (Two trading points in the Rockies remained unchanged during the week.)

At the New York Mercantile Exchange, the price of the October 2010 futures contract rose about 5 cents, from $3.762 per MMBtu on September 1 to $3.814 per MMBtu on September 8. The 12-month strip (the average of all contracts from October 2010 to September 2011) fell about 2 cents, from $4.436 per MMBtu to $4.413 per MMBtu. The winter heating strip (the average of the contracts from November 2010 to March 2011) fell from $4.431 per MMBtu to $4.392 per MMBtu. Last year, the October 2009 contract settled at $2.807 per MMBtu on September 8, almost 36 percent lower than yesterday’s price.

Working natural gas in storage increased to 3,164 Bcf as of Friday, September 3, according to EIA’s Weekly Natural Gas Storage Report (see Storage Figure). The implied net injection was 58 Bcf, compared with last year’s net injection of 68 Bcf and the 5-year average of 64 Bcf for the report week. Working gas inventories are currently 218 Bcf below year-ago levels and 166 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 24 weeks.

The surplus of working gas stocks relative to the 5-year average continues to shrink as a result of warm temperatures, and the year-over-year storage deficit continues to grow. Injections into working gas stocks have fallen short of the 5-year average for 12 consecutive weeks, as significantly warmer-than-normal temperatures throughout the summer have continued to drive declines in the surplus of working gas stocks relative to the 5-year average. Since May 6, cumulative cooling degree-days have exceeded normal levels by about 25 percent, outstripping normal levels during each week. These warmer than normal temperatures resulted in increased electric generation demand for natural gas, contributing declines in the surplus relative to the 5-year average. Since peaking at 325 Bcf for the week ending May 7, the surplus relative to the 5-year average in the lower 48 States has fallen in 15 out of 18 weeks.

Temperatures were warmer than normal in the lower 48 States during the week ending September 2, with Census Divisions east of the Rocky Mountains generally reporting warmer than normal temperatures. Based on the National Weather Service’s degree-day data, temperatures in the lower 48 States during the week ending September 2 were, on average, about 74.6 degrees, about 3 degrees warmer than normal and 4.3 degrees warmer than last year at this time (see Temperature Maps and Data). In contrast to the warmer-than-normal temperatures reported elsewhere in the lower 48 States, the Pacific and Mountain Census Divisions were the only areas reporting cooler-than-normal average temperatures in the lower 48 States. Temperatures in the Pacific averaged nearly 4 percent below normal levels, and temperatures in the Mountain were slightly below normal.

EIA Expects Natural Gas Consumption Will Rise in 2010 and Remain Flat in 2011. According to EIA’s Short-Term Energy Outlook (STEO), released September 8, natural gas consumption in 2010 is expected to rise by 4 percent to 65 Bcf per day from its 2009 levels. Consumption growth in the electric power and industrial sectors will largely account for the increase. The increase in power generation this year is mainly due to exceptionally warm weather in many areas of the United States, which boosted the demand for air-conditioning. Additionally, cold temperatures this past winter in Southern states also led to an increase in power burn. Natural gas production, according to the STEO, is expected to also rise in 2010, to 61.2 Bcf per day, an increase of about 2 percent from 2009 levels, and to decline slightly in 2011 to 60 Bcf per day. Natural gas supplies remain abundant, and producers may curtail production in response to low prices. During the first three months of this year’s hurricane season, 7.9 Bcf of natural gas production was shut in, compared with STEO’s estimated 57.4 Bcf. However, EIA projects 66.3 Bcf of shut-ins in the remaining three months of the hurricane season. September and October are typically the most active months in the hurricane season. EIA expects Henry Hub spot prices will average below $4 per MMBtu in September and October before rebounding at the onset of colder weather. EIA now expects spot prices will average $4.76 per MMBtu in 2011. The STEO provides an analysis of price volatility and forecast uncertainty.

Natural Gas Rigs Rise to 977. The natural gas rotary rig count rose to 977, an increase of 4 from the previous week, according to data released September 3 by Baker Hughes Incorporated.Following a substantial increase over the past several weeks, oil rigs fell this week to 655 from 672. However, oil rigs currently are about 22 percent higher than their level about 2 months ago. The total rig count is 1,653, about 39 percent higher than its level at the beginning of 2010 and 64 percent higher than its level one year ago. Horizontal rigs (including both oil and natural gas) fell this week from 904 to 903, but remain close to a historical high. Vertical rigs (including both oil and natural gas) rose by 1 to 528 this week, and have oscillated somewhat in the past several weeks.

BOEMRE Launches Investigation into Offshore Platform Explosion. The Bureau of Ocean Energy Management, Regulation, and Enforcement (BOEMRE) on September 3 launched an inquiry into a recent rig explosion in the Gulf of Mexico. The incident occurred on Mariner Energy’s Vermilion 380 oil and gas production platform, located in 340 feet of water, 102 miles offshore of Louisiana. The 13 workers on the platform were all rescued. According to the most recent update from BOEMRE, no signs of pollution were coming from the platform. More information is available here: http://www.boemre.gov/ooc/newweb/newr.htm

• Northwest Pipeline Corporation continues to perform an anomaly investigation near its Kemmerer compressor station in Lincoln County, Wyoming, through October 1. Northwest previously identified several anomalies which required a reduction of available capacity at the Kemmerer station to 470,000 dekatherms (Dth) per day through September 10, 2010. Northwest has announced that the ongoing work has created additional pressure restrictions for live-line excavation that will limit the available capacity to 544,000 Dth per day from September 11 through September 17. The available capacity will increase to 579,000 Dth per day on September 18. Full design capacity of 655,000 Dth per day is expected to be restored on October 1, 2010.



• High storage inventories for this point in the injection season in the West continue to reduce flexibility to inject gas into storage, limiting pipelines’ ability to absorb imbalances. Colorado Interstate Gas Company previously implemented a Strained Operating Condition (SOC) on September 1, and has announced that the SOC will remain in effect until further notice based on current operating conditions. On September 7 and 8, Pacific Gas and Electric Company issued system-wide high inventory flow orders for those gas days, as inventories approached operational limits.



• Rockies Express Pipeline (REX) has identified five compressor units at its Blue Mound compressor station in Christian County, Illinois, that require repairs or alterations to comply with an environment condition in their FERC Certificate Order. Additional noise control measures will be installed in order to comply with the Certificate Order. This force majeure event will be effective October 25, 2010, through the completion of the work. The five compressor units will individually be modified and will take up to 4 days per unit (20 days in total.) Capacity through Segment 320 on REX will be reduced by 70,000 Dth for up to 8 days and by 90,000 Dth for up to 12 days.

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.