Natural Gas Weekly Update

Natural Gas Weekly Update Text
Released: November 4, 2010 at 2:00 P.M.
Next Release: Wednesday, November 10, 2010
Overview (For the Week Ending Wednesday, November 3, 2010)

  • Price changes were mixed this week, with much regional variation across the country. At the Henry Hub in Erath, Louisiana, prices posted a net decline on the week of 2 cents, falling from $3.37 per million Btu (MMBtu) on Wednesday, October 27, to $3.35 per MMBtu on Wednesday, November 3.

  • At the New York Mercantile Exchange (NYMEX), the December 2010 futures contract (which became the near-month contract on October 28) rose $0.073 from $3.763 per MMBtu last Wednesday to $3.836 yesterday.

  • Working natural gas in storage increased to 3,821 billion cubic feet (Bcf) as of Friday, October 29, according to the Energy Information Administration’s (EIA) Weekly Natural Gas Storage Report.

  • The West Texas Intermediate crude oil spot price rose on the week from $81.9 per barrel (or $14.12 per MMBtu) to $84.45 per barrel ($14.56 per MMBtu).

  • The natural gas rotary rig count, as reported Friday, October 29, by Baker Hughes Incorporated, rose by 2 to 967. The rig count has mainly remained flat over the past several months.

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

Price changes during the week varied between declines of up to 63 cents in Florida and increases of up to 66 cents in the Northeast. At the Henry Hub, prices fell by 2 cents from $3.37 per MMBtu on Wednesday, October 27, to $3.35 per MMBtu on Wednesday, November 3. The Henry Hub spot price is $1.16 lower than its level at the same time last year and has been trading below $4 per MMBtu since the end of September.

The largest price increases occurred in the Northeast United States, where average temperatures dropped into the 40s in most areas. The largest increase in the country occurred at the Iroquois Zone 1 station, where prices rose 17 percent to end the report week at $4.51 per MMBtu. At Transcontinental Pipeline’s Zone 6 station for delivery into New York City, prices rose 10 cents to end the week at $3.82 per MMBtu. Nationally, residential and commercial consumption increased by almost 30 percent week over week, according to estimates from BENTEK Energy Services, LLC, undoubtedly due to the colder temperatures across the country in the week ending November 3. Average temperatures also dropped to the 30s and 40s in most areas in the United States north of 40 degrees latitude. While temperatures during the report week were slightly warmer than normal, they were colder than the previous week, leading to increased week over week demand.

Despite cold temperatures, prices at most trading locations in the Rocky Mountains fell. Price declines in the Rocky Mountain region ranged from 2 cents to 23 cents per MMBtu; and Rockies prices are still among the lowest in the country. The price declines may be the result of mild weather in areas of California that are served by Rockies natural gas, as well as a lack of available unfilled storage capacity in the West. According to BENTEK estimates, storage facilities are close to or at capacity at most areas in the western United States.

Though supply still exceeded demand during the Thursday-to-Wednesday report week (October 28-Nov 3) as reported by BENTEK, the supply/demand balance continued to tighten as demand rose while supply stayed flat. Total supply rose less than one half of one percent during the report week, as production and liquefied natural gas (LNG) sendout rose slightly. Overall, Canadian pipeline imports fell by an estimated 2 percent, but declines in imports to the West and Midwest were partially offset by a 17-percent increase in imports to the Northeast. Total consumption rose 7 percent, bolstered by a 30-percent increase in residential and commercial consumption, and partially offset by a 9-percent decline in consumption of natural gas for electric power generation. Compared to last year, total consumption is 2 percent higher and total supply is 6 percent higher.

Spot Prices

At the NYMEX, the price of the December 2010 natural gas contract rose $0.073 from $3.763 per MMBtu last Wednesday to $3.836 yesterday. The November 2010 contract expired on Wednesday, October 27, and the December contract moved into the near-month position. As the contract month changed, the price of the near-month jumped, reflecting seasonal expectations for higher prices in December. The November contract closed at $3.292 per MMBtu; on the first day of trading in the near-month position, the December contract settled at $3.890 per MMBtu. The premium of the near-month contract to the Henry Hub price also increased substantially, which may give storage operators an incentive to add gas to storage. The price of the 12-month strip (the average of the 12 contracts from December 2010 to November 2011) rose during the week from $4.131 last Wednesday to $4.177 yesterday.

Wellhead Prices Annual Energy Review
More Price Data

Working natural gas in storage increased to 3,821 Bcf as of Friday, October 29, according to EIA's Weekly Natural Gas Storage Report (see Storage Figure). The implied net injection was 67 Bcf, compared with last year's net injection of 29 Bcf and the 5-year average injection of 26 Bcf for the report week. This is the eighth consecutive week of larger year-over-year storage builds. The Producing region storage levels are now 29 Bcf above last year’s level, while the Eastern and Western regions are 6 Bcf and 2 Bcf above last year’s levels, respectively.

Storage is now higher than the same week last year. However, last year saw continued builds through most of November, ending that month above the end-of-October level. It is certainly possible to see a repeat of that pattern if the previous warm weather continues, especially given this year’s higher production levels, but the 5-year average suggests a net withdrawal for the month of November.

Temperatures were again warmer than normal in the lower 48 States during the week ending October 28. For the third week in a row, the National Weather Service’s degree-day data shows temperatures in the lower 48 States were higher than normal in most census divisions. Nationwide, temperatures averaged 5.4 degrees warmer than normal and 4.1 degrees warmer than last year. (see Temperature Maps and Data). Temperatures were highest in the West South Central, averaging nearly 71 degrees, 11 degrees warmer than last year. As a result of the warmer weather, heating degree days were lower than normal in all census divisions, except for the Mountain and Pacific Divisions. Heating degree days in the lower 48 States were 35 percent below normal. This is one of the main reasons for another week of abnormally large storage increases.

Storage Table

More Storage Data
Other Market Trends

Office of Fossil Energy Reveals New Telemetry Innovation. Researchers with the Department of Energy (DOE) this week revealed an innovative telemetry communications system that will help producers explore for and exploit natural gas resources deep underground, according to DOE’s National Energy Technology Laboratory (NETL). The technology, which is being commercialized by Sharewell, LP, of Houston, Texas, allows drilling companies to operate successfully at greater depths than in the past through more effective real-time transmission of data from down-hole equipment. According to the researchers, the new telemetry equipment, which is being marketed as the Spectra-Elink©, is the most important technological innovation in low-frequency electromagnetic telemetry equipment in the last 15 years. It was developed by E-Spectrum Technologies, Inc. and NETL as part of the DOE’s “Deep Trek” initiative to develop new technologies to facilitate exploration for deep natural gas resources. The Deep Trek Program was established in 2002 to develop technologies to access resources in depths of 15,000 feet and deeper, where more than 125 trillion cubic feet of untapped natural gas is estimated to be in place.

Marketed Production Rises to 62.6 Bcf per Day in August. EIA released the October 2010 Natural Gas Monthly on October 29, with data through August 2010. According to EIA, marketed production of natural gas rose to 62.6 Bcf per day in August, an increase of about 2 percent from the previous month and 4 percent from August 2009. Total natural gas consumption rose 3 percent, from 58.8 Bcf per day last month to 60.5 Bcf per day, bolstered by an increase in demand of natural gas for electric power generation. Consumption of natural gas for power generation rose to 30.6 Bcf per day in August, from 29.1 Bcf per day in July, and was 13 percent higher than last August’s level of 27.1 Bcf per day. Both residential and commercial consumption fell 5 percent, while industrial consumption largely remained flat relative to last month. However, industrial consumption continues to show significant increases over last year’s volumes, with a year-to-date increase of 9.5 percent. Wellhead prices dropped slightly, from $4.48 per MMBtu in July to $4.34 per MMBtu in August. Compared with last year, prices are about 38 percent higher. LNG imports dropped from 1.2 Bcf per day in July to about 700 million cubic feet (MMcf) per day, while pipeline imports dropped from 9.4 Bcf per day to 9.2 Bcf per day.

Natural Gas Transportation Update

  • Gulf South Pipeline Company, LP, this week scheduled maintenance on each of four compression units at the company’s compressor station in Jackson, Mississippi. The work will begin today (November 4) and last through November 12, possibly reducing capacity through the station by as much as 150 MMcf per day, according to the company. Based on current system operations and nominations, Gulf South did not anticipate any impact to shippers. However, because of “changing operational conditions,” this expectation could change at any time, the pipeline company said.

  • In the Northeast, colder temperatures (and associated higher demand) at least temporarily brought some relief this report week to infrastructure companies that are experiencing high levels of linepack on their pipelines and storage inventories near or at maximum capacity levels. On Monday, November 1, Transcontinental Gas Pipeline Corporation (Transco) ended restrictions against shipper imbalances that had been in place since the prior week, citing improvement in operating conditions. Nonetheless, the pipeline’s flexibility to manage any creation of imbalances remains limited, Transco said. By Tuesday, November 2, Tennessee Gas Pipeline Company was also able to lift an Operational Flow Order (OFO) that had required balancing of nominations and deliveries on its system.

  • In the Rockies, relief to the high supplies on pipeline systems and in storage facilities also appeared in the form of loosened restrictions by Questar Pipeline Company. On Wednesday, November 3, Questar said that it will end an OFO limiting shippers’ ability to schedule “paybacks” to the pipeline in order to compensate for past imbalances. However, Questar emphasized that shippers should closely align scheduled nominations and actual production in order to minimize the possibility of the OFO being reinstated.

  • Transco this week confirmed that it will be conducting maintenance at its onshore Station 62 near Bayou Black, Louisiana, from November 8-12. Transco noted that receipts upstream of Station 62 will be scheduled to zero for the duration of the maintenance. The maintenance is likely to impact approximately 250 MMcf of gas per day that is currently flowing through the station, according to BENTEK. However, with several pipeline interconnections existing before the station, some of the supply can be redirected onto other pipeline systems, BENTEK noted.

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.