Natural Gas Weekly Update

Natural Gas Weekly Update Text
Released: January 6, 2011 at 2:00 P.M.
Next Release: Thursday, January 13, 2011
Overview (For the Week Ending Wednesday, January 5, 2011)

  • Natural gas spot prices rose at all domestic pricing points, likely in response to expectations for still-colder weather. The Henry Hub price rose 33 cents per million Btu (MMBtu) (about 8 percent) for the week ending January 5, to $4.52 per MMBtu.

  • The West Texas Intermediate crude oil spot price settled at $90.30 per barrel ($15.57 per MMBtu), on Wednesday, January 5. This represents a decrease of $0.83 per barrel, or $0.14 per MMBtu, from the previous Wednesday.

  • Working natural gas in storage fell to 3,097 billion cubic feet (Bcf) as of Friday, December 31, according to the Energy Information Administration’s (EIA) Weekly Natural Gas Storage Report (WNGSR). The implied draw for the week was 135 Bcf, exceeding the 5-year average draw of 79 Bcf.

  • At the New York Mercantile Exchange (NYMEX), the February 2011 contract price rose 18.6 cents to $4.473 per MMBtu from the previous Wednesday.

  • The natural gas rotary rig count, as reported December 31 by Baker Hughes Incorporated, fell by 12 to 919, marking the fourth consecutive week of decline. However, this level still represents an increase of 160 units (21 percent) from the same period last year.

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

Prices traced out a general uptrend pattern over the past week as predictions for a warmer-than-normal January gave way to expectations of a prolonged arctic blast, followed by yet another forecast for moderating temperatures. However, a backdrop of continuing robust storage served to ameliorate the overall price rise. On average, spot prices rose across the board from last week, by a nominal 36 cents per MMBtu (8 percent). As expected, the largest regional average weekly increase occurred in the Northeast, which showed a 51-cent per MMBtu (11 percent) gain for the week. The Rockies saw the next highest regional increase at 38 cents per MMBtu (8 percent). The Midwest region was up 37 cents (8 percent) while the Midcontinent region showed a 36-cent per MMBtu (9 percent) gain.

The increase in gas prices corresponded with an overall rebound in natural gas consumption and easing of production. According to estimates from BENTEK Energy Services, LLC, domestic consumption this week, which included the New Year holiday, increased by 7.5 percent over the previous week. An increase in residential and commercial use of 20.7 percent was the primary factor driving the gain. Meanwhile, according to BENTEK, consumption in the power sector fell by 7.9 percent, while the industrial sector registered a 1.9-percent increase. Despite this week’s overall weekly gains, natural gas consumption still remains about 14.6 percent below corresponding year-ago levels.

According to BENTEK estimates, total supply of natural gas fell this week by 1.5 percent. Domestic production was off by 2.9 percent, accounting for the bulk of the decline. Canadian imports were up 5 percent for the week but remain about 6 percent below year-ago levels. Things were no different in the LNG arena where imports were about flat on the week but remained nearly 72 percent below the corresponding week last year.

Spot Prices Spot Prices Spot Prices

At the NYMEX, the price of the February 2011 contract increased 18.6 cents, from $4.287 per MMBtu to $4.473 per MMBtu. During intraweek trading, daily prices oscillated up 31.2 cents and down 19.6 cents per MMBtu in response to the changing weather forecasts reported in the trade press. The differential between Henry Hub spot and NYMEX futures prices oscillated, reversing from 9.7 cents per MMBtu in favor of NYMEX a week ago to 4.7 cents per MMBtu in favor of Henry Hub spot yesterday.

Wellhead Prices
Annual Energy Review
More Price Data

Working natural gas in storage fell to 3,097 Bcf as of Friday, December 31, according to EIA’s WNGSR (see Storage Figure). The net draw of 135 Bcf is larger than the 5-year average draw of 79 Bcf but less than last year’s draw of 149 Bcf for the report week. The Producing region storage levels are now 70 Bcf above last year’s level, while the East region is 109 Bcf below. Working gas stocks in the West region are 9 Bcf below last year.

The week’s draw marks the fifth consecutive week of larger than normal draws. While production remains high, relatively cold weather over much of the country during the last several weeks has increased winter heating demand.

Temperatures were slightly colder than normal in the lower 48 States during the week ending December 30. The National Weather Service’s degree-day data show that the temperature in the lower 48 States last week averaged 33.6 degrees, just 0.7 degrees below normal, and 0.4 degrees above last year (See Temperature Maps and Data). Relatively cold weather in the Southeast, including an average 6.9 degrees below normal in the South Atlantic Region, was largely offset by relatively warm weather in the Midwest. Overall, there were 1.9% more heating degree-days than normal.

Storage Table

More Storage Data
Other Market Trends

Oil Spill Commission Says Spill was Avoidable. The National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling on January 6 characterized last spring’s blowout of the Macondo well in the Gulf of Mexico, which resulted in the largest oil spill ever in U.S. waters, as the result of missteps and oversights by the involved companies. In advance of its upcoming full report (to be released January 11), the commission issued key conclusions from its extensive investigation into the causes of the blowout of the oil well, which was being drilled by a consortium of the companies BP, Transocean and Halliburton. On April 20, 2010, the blowout killed 11 workers and resulted in the release of over four million barrels of oil into the Gulf of Mexico for nearly three months before the well was capped. According to the early release, the Macondo blowout was the product of several individual missteps and oversights by BP, Halliburton, and Transocean, which government regulators lacked the authority, the necessary resources, and the technical expertise to prevent. Mistakes included a flawed design for the cement slurry used to seal the bottom of the well, which was developed without adequate engineering review or operator supervision. In fact, a “negative pressure test,” conducted to evaluate the cement seal at the bottom of the well, identified problems but was incorrectly judged a success because of insufficiently rigorous test procedures and inadequate training of key personnel. There was apparent inattention to key initial signals of the impending blowout. The chapter reports that these failures were preventable. The Commission’s full report, to be released on January 11, will contain its complete examination of impacts and considerations regarding the BP’s Macondo well blowout, including chapters on a history of events. President Obama established the National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling on May 22nd, 2010, to investigate the root causes of the spill and provide recommendations on how to prevent and mitigate the impact of any future spills that result from offshore drilling.

Pipeline Operations to Be Scrutinized. The National Transportation Safety Board (NTSB) on January 3 issued a series of safety recommendations, many classified as "urgent," as a result of its investigation into the pipeline rupture and explosion that killed eight people and destroyed 37 homes in San Bruno, California, in September 2010. Although the cause of the San Bruno accident is still not known, the NTSB expressed concern that record-keeping problems could have created conditions in which the pipeline was operated at a higher pressure than the pipe was built to withstand. Investigators found that although the records of the pipeline operator, Pacific Gas and Electric Company (PG&E), indicated that the pipeline in the area of the rupture was constructed of seamless pipe, it was instead constructed of longitudinal seam-welded pipe. The NTSB said that the seam-welded sections may not be as strong as the seamless pipe that was identified in PG&E's records, resulting in potentially unsafe maximum allowable operating pressure (MAOP). To address this issue, the NTSB asked PG&E to conduct an intensive records search to identify all the gas transmission lines that had not previously undergone a testing regimen designed to validate a safe operating pressure. Further, the NTSB said that other pipeline operators may have discrepancies in their records that could potentially compromise the safe operation of pipelines throughout the United States. Because of this, the NTSB has made an urgent recommendation to the Pipeline and Hazardous Materials Safety Administration (PHMSA) to expeditiously inform the pipeline industry of the circumstances of the San Bruno accident and investigative findings so that pipeline operators can proactively implement any corrective measures for their respective pipeline systems.

Natural Gas Annual 2009 Shows Highest Marketed Production since 1973. EIA released the Natural Gas Annual 2009 (NGA2009) on December 28, 2010. The NGA2009 provides information on the supply and disposition of natural gas in the United States. Total U.S. marketed production increased for the fourth consecutive year in 2009, reaching 21.6 trillion cubic feet (Tcf), an increase of 2.3 percent over the 2008 total. Net imports to the United States reached a 15-year low of 2,679 Bcf, a decrease of about 342 Bcf, or 11.3 percent, from the previous year. The volume of net imports in 2009 equaled about 11.7 percent of U.S. natural gas consumption, which was the lowest ratio since 1994. A significant decline in pipeline imports from Canada was the largest single factor contributing to the decrease, as gross imports from the country decreased 318 Bcf, or 8.9 percent, in 2009 compared with 2008, while exports to Canada from the United States increased. Even with lower natural gas prices, natural gas consumption declined from the previous year in the residential, commercial, and industrial sectors because of a combination of weather and economic factors. Weather was the primary factor contributing to lower residential consumption, while the weakened economy was a major influence in declines in commercial and industrial consumption. Gains in consumption from electric power partially offset losses in the other sectors. Total U.S. consumption fell to 62.6 Bcf per day in 2009, from 63.7 Bcf per day in 2008.

Production Decreased Slightly in October 2010. EIA on December 28 released the December 2010 Natural Gas Monthly (NGM), including data through October 2010. According to the NGM, dry natural gas production declined slightly to 59.9 Bcf per day in October 2010, from 60.0 Bcf per day the previous month. Production in October was about 7.5 percent higher than the same month in 2009, when dry production totaled 55.7 Bcf per day. Aggregate dry production from January through October 2010 was 17,852 Bcf, compared with 17,194 Bcf for the same period in 2009. Wellhead prices decreased about 7 percent, from $3.78 per thousand cubic feet (Mcf) in September to $3.51 per Mcf in October. The average wellhead price in October was about 8.4 percent lower than the year-ago level of $3.83 per Mcf. The December 2010 NGM contains extensive revisions to 2008 and 2009 data as a result of benchmarking to data published in the NGA2009. These revisions primarily apply to statistics on production, underground storage, consumption, and prices by sector. One effect of the volumetric revisions is a significant reduction in the annualized balancing items for 2008 and 2009, which represent the difference between natural gas supply and disposition at the national level. Many 2010 monthly data series have been revised as well because of updated estimation parameters using 2009 annual data.

Natural Gas Transportation Update

  • Maritimes and Northeast Pipeline Company on January 4 informed shippers that it has limited operational flexibility to manage imbalances that may arise due to a reduction of flows from the Sable Island production facility off the coast of Nova Scotia, Canada. As a result, effective immediately, the pipeline company required all delivery point operators to keep actual daily takes out of the system less than or equal to scheduled quantities regardless of their cumulative imbalance position. BENTEK recorded flows on January 4 at the Canadian border into Maine had dropped 88 million cubic feet (MMcf) per day from the 30-day average, to 39 MMcf per day.

  • Bison Pipeline, the new 302-mile interstate pipeline from the Powder River Basin to North Dakota (and an interconnection with Northern Border Pipeline), has begun receiving supplies to build up pressure with the aim of entering commercial operations this month. Bison is receiving volumes from a receiving point in the processing plant near Gillette, Wyoming, and will deliver the supplies to Northern Border, with the Midwest as its likely eventual destination. The cumulative volume reached 538 MMcf on January 6, according to BENTEK, which is over half of the projected 1.0 Bcf line pack that Bison will need to start operations.

  • Texas Gas Transmission, LLC, continues to perform unexpected maintenance at its compressor station in Youngsville, Louisiana. The pipeline company lowered non-firm capacity on the pipeline through the station on December 24. The lower capacity has resulted in throughput at the station decreasing from 456 to 373 MMcf per day starting on December 24. Throughput as of January 4 was considerably lower at 190 MMcf. Texas Gas has informed shippers that the maintenance is expected to be completed by January 10.

  • Southern California Gas yesterday, January 5, said that it has boosted its receipt capacity at its Topock, Arizona, border interconnects with El Paso Natural Gas and Transwestern Pipeline. Following completion of anomaly repairs on Line 3000, the capacity yesterday increased over 300 MMcf per day. The work, which had required a reduction in line pressure, had begun November 10, 2010.

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.