Natural Gas

• Since Wednesday, September 15, natural gas spot prices fell at most markets across the lower 48 States, with declines of less than 10 cents per million Btu (MMBtu). However, selected markets in the Rocky Mountains and at the Florida citygate posted considerably larger declines, falling by as much as $0.51 per MMBtu. The Henry Hub natural gas spot price fell $0.04 per MMBtu since last Wednesday, averaging $4.02 per MMBtu in trading yesterday, September 22.
  
• At the New York Mercantile Exchange (NYMEX), the futures contract for October delivery at the Henry Hub settled yesterday at $3.966 per MMBtu, falling by $0.029, or about 1 percent, since the previous Wednesday.
  
• Natural gas in storage totaled 3,340 billion cubic feet (Bcf) as of September 17, about 6.2 percent above the 5-year (2005-2009) average. The implied net injection for the week was 73 Bcf.
  
• The spot price for West Texas Intermediate (WTI) crude oil decreased by $2.92 per barrel since Wednesday, September 15, ending the report week at $72.98 per barrel, or $12.58 per MMBtu.

Since last Wednesday, September 15, natural gas spot prices posted relatively narrow declines at most market locations across the lower 48 States. Natural gas prices fell at the majority of market locations since last Wednesday, as moderating temperatures early in the week eased cooling demand for natural gas, domestic natural gas production remained robust, and the tropical storm threats posed by Igor, Julia, and Karl passed without incident. Despite these declines, prices rallied at most markets in trading on Wednesday, September 22, mitigating the earlier declines, as warm temperatures returned. Price declines were generally less than 10 cents per MMBtu at most market locations. At the Henry Hub, prices fell $0.04 since last Wednesday to $4.02 per MMBtu. More pronounced price declines occurred in the Rocky Mountains region and at the Florida citygate.

Prices at the Florida Gas Transmission Citygate and at selected markets in the Rocky Mountains region posted the largest declines in the lower 48 States since last Wednesday, September 15. Prices at several locations in the Rocky Mountains region posted declines ranging between 45 and 51 cents per MMBtu since last Wednesday. The majority of these declines occurred in trading on Tuesday, September 21, and may have resulted from transportation constraints in the region, according to some reports in the trade press. The price at the Florida Citygate also posted a significant decline on the week, falling $0.30 per MMBtu since last Wednesday, September 15, as temperatures moderated in the region. Prices at the Florida Citygate had been the highest in the lower 48 States since an early heat wave in the first week of May. However, with prices falling to $4.49 per MMBtu on September 22, prices at the Florida citygate relinquished the top spot to a market location in the Northeast region as summer came to a close.

Natural gas spot prices at the Henry Hub are trading significantly above year-ago levels. At $4.02 per MMBtu in trading on September 22, prices at the Henry Hub were nearly 20 percent, or $0.66 per MMBtu, higher than year-ago levels. Natural gas spot prices at most markets elsewhere in the lower 48 States were trading at about 10 to 25 percent above year-ago levels. Higher spot prices likely reflect increased natural gas consumption for electric power generation and recovery in the industrial sector.

Total weekly natural gas consumption in the lower 48 States increased since last week, despite week-on-week decreases in demand on Wednesday, September 22. Natural gas consumption during the report week rose from week-ago levels, with increases in the electric power sector offsetting declines in the industrial and residential/commercial sectors, according to estimates by BENTEK Energy Services, LLC. Total natural gas consumption rose about 1.6 percent since last week, driven by an increase of 4.9 percent in the electric power sector. Natural gas consumption remains above year-ago levels, with consumption in the electric power and industrial sectors exceeding year-ago levels by 8 percent and 1.2 percent, respectively.

Natural gas supplies posted a narrow increase since last week despite decreased domestic natural gas production. On the week, natural gas supplies rose by 0.2 percent, according to BENTEK estimates, while domestic production fell 0.1 percent on the week. Increased Canadian imports and LNG sendout, which grew 2 percent and 5 percent, respectively, more than offset the decline in domestic production. Despite posting a slight decline during the week, total domestic natural gas production remains about 7 percent above the level reported last year at this time.

At the NYMEX, the 12-month strip (or the average price of futures contracts from October 2010 through September 2011) averaged $4.37 per MMBtu in trading on Wednesday, September 22, falling by about $0.12 on the week. Most of the weekly declines in the 12-month strip occurred for the later months, with the contracts for delivery from October 2010 through February 2011 falling 10 cents per MMBtu, or less. The October 2010 contract fell $0.029 per MMBtu, posting the smallest decline on the week. Relatively mild temperatures, declining spot prices, and easing concerns about potential tropical storm activity in the Gulf of Mexico likely contributed to the net declines on the week. Following an uptick in trading on Thursday, September 16, prices on the NYMEX declined heading into the weekend on Friday. In trading on Monday, September 21, prices for futures contracts on the 12-month strip posted significant declines, with the October 2010 contract falling $0.202 per MMBtu, as the tropical storm threats passed. However, prices on the 12-month strip recovered in subsequent trading, with the return of warmer temperatures expected later in the week.

Working natural gas in storage increased to 3,340 Bcf as of Friday, September 17, according to the Energy Information Administration’s (EIA) Weekly Natural Gas Storage Report (see Storage Figure). The implied net injection was 73 Bcf, compared with last year’s net injection of 66 Bcf and the 5-year (2005-2009) average injection of 70 Bcf for the report week. Robust domestic production and moderating cooling demand for natural gas likely contributed to the larger-than-normal rate of injections into storage. As a result, the year-on-year storage deficit decreased from 182 Bcf to 175 Bcf below last year’s level, marking the second consecutive week that the year-over-year deficit has fallen. Working gas inventories were 195 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, with the Producing region recording the largest surplus relative to the 5-year average of 114 Bcf. Inventories in the East and West regions exceeded the 5-year average by 16 Bcf and 65 Bcf, respectively. However, working gas stocks in the East region are 92 Bcf, or 4.8 percent, below last year’s level, and working gas stocks in the Producing region are 95 Bcf, or 8.5 percent, below last year’s level.

Temperatures were generally mild in the lower 48 States during the week ending September 16. Based on the National Weather Service’s degree-day data, temperatures in the lower 48 States during the week ending September 16 were warmer than normal on average, and about 1 degree cooler than last year at this time (see Temperature Maps and Data). Temperatures were warmest in the West South Central, South Atlantic, and East South Central Census Divisions, where average temperatures ranged between 75 and 82 degrees. Elsewhere in the lower 48 States, average temperatures ranged between 59 and 69 degrees. The New England, Middle Atlantic, and East North Central Census Divisions reported temperatures suggestive of incipient heating demand this season, with average temperatures ranging between 59 and 63 degrees, or about 2 to 5 percent below normal for this time of year.

Hydrocarbons Drive Libyan Economy. On September 21, EIA released a Country Analysis Brief on Libya, a member of the Organization of Petroleum Exporting Countries and a large producer of natural gas. The hydrocarbon industry in Libya accounted for more than 95 percent of export revenues and an estimated 80 percent of fiscal revenues in 2008. Libya’s gross production of natural gas totaled 1,070 Bcf during 2008, according to EIA. Of that, 562 Bcf was marketed — the rest was vented, flared, or re-injected to enhance oil recovery. In 2008, the country exported 368 Bcf of their marketed natural gas, all of which went to Europe, mainly via pipeline. The second country in the world to export LNG, Libya’s LNG exports remain relatively low due to technical limitations caused by an inability to obtain equipment. Over the past 5 years, exports to Europe have increased as a result of the Greenstream pipeline, which came online in October 2004 and runs underwater to Sicily, where natural gas is then exported to the Italian mainland and to the rest of Europe. In 2003 and 2004, the United States and the United Nations lifted sanctions on Libya that had been in place for over a decade; as a result, international companies have increased investment in Libya’s hydrocarbon sector. According to EIA, the country’s government plans to increase oil reserves and production capacity, as well as expand the natural gas sector, in the coming years. Other Country Analysis Briefs are available here: http://www.eia.doe.gov/emeu/cabs/index.html

Infrastructure Constraints Limit Natural Gas Vehicle Growth. Analysts sometimes present increased use of natural gas vehicles as an option to reduce the transportation sector’s dependence on oil and to lower greenhouse gas emissions. While use of natural gas as a transportation fuel has increased over the past several years, several challenges remain.

• According to EIA data, natural gas vehicles used 87 million cubic feet per day (MMcf/d) of natural gas in 2009. Consumption for vehicle use has increased about 270 percent since 1997 (see graph). Nonetheless, only 0.2 percent of the fuel used by all highway vehicles in 2008 was natural gas.
• A lack of refueling infrastructure poses a significant barrier to greater adoption of natural gas vehicles. The Department of Energy’s Office of Energy Efficiency and Renewable Energy reports that there were 841 compressed natural gas (CNG) fuel stations and 41 LNG fuel stations across the U.S., as of the end of August 2010. More information about alternative fuel stations is available here: http://www.afdc.energy.gov/afdc/fuels/stations_counts.html
• Compared with other types of vehicles, the reference case in EIA’s
• Annual Energy Outlook 2010
(which assumes current laws and regulations) projects that the stock of heavy trucks powered by natural gas will grow the most. The fleet of natural gas-fueled heavy trucks is projected to grow almost 10-fold (to 260,000) by 2035 from 27,000 in 2008, partly because natural gas costs are projected to be between 42 percent and 50 percent less than diesel fuel on an energy-equivalent basis over this time period. Still, these trucks make up a relatively small share (1.7 percent) of the total heavy truck fleet, partly because of higher incremental vehicle costs. The largest component of the incremental cost is the fuel storage system, which consists of tanks to contain CNG at high pressure or insulated tanks to contain LNG.

BP Successfully Kills Leaking Oil Well. The Bureau of Ocean Energy Management, Regulation, and Enforcement confirmed on September 19 that the well leaking as a result of the Deepwater Horizon Incident on April 20 has been successfully cemented and plugged, and that the relief well has been completed. The well poses no continuing threat to the Gulf of Mexico. More information about the ongoing cleanup efforts is available at www.restorethegulf.gov.

• Mississippi River Transmission Corporation (MRT) on Thursday, September 23, informed shippers that full injection capacity had returned to its Unionville storage facility in Lincoln Parish, Louisiana. MRT on Tuesday had initiated a limitation in injection capacity because of an engine failure at storage facilities.
  
• Natural Gas Pipeline of America Company on Sunday, September 19, experienced an outage of a compressor at its Station 106 in Gage County, Nebraska. As a result, the pipeline company said it will only be able to transport 70 percent of maximum daily capacity for shippers, assuming that all shippers are active on the pipeline during the repair work.
  
• Northwest Pipeline Company on Monday announced that it would be performing mainline testing this week on its pipeline segment near a compressor station in Pleasant View, Colorado. As a result, the company said there would be no capacity through the station from Tuesday through Saturday. Northwest said primary firm nomination requests through Pleasant View recently have equaled its design capacity of 351 MMcf/d.
  
• Transwestern Pipeline Company on Tuesday said it planned to delay a turbine engine exchange at its compressor station in La Plata, Colorado. The pipeline said it will reschedule the exchange (originally scheduled for Tuesday of this week) when the turbine is available. When the exchange occurs, station capacity will be temporarily reduced from 500 MMcf per day to 330 MMcf per day. The delay resulted from unforeseen problems with the testing and shipment of the unit from the vendor, according to the pipeline company.

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.