Natural Gas

• Natural gas prices showed continued relative weakness during the report week. The spot price at the Henry Hub fell from $3.83 per million Btu (MMBtu) on February 23 to $3.79 per MMBtu on March 2.
  
• At the New York Mercantile Exchange (NYMEX), the March 2011 futures contract expired at $3.793 per MMBtu, having declined about 12 percent during its tenure as the near-month contract.
  
• Working natural gas in storage fell to 1,745 Bcf as of Friday, February 25, according to EIA’s Weekly Natural Gas Storage Report.
  
• The spot price of the West Texas Intermediate (WTI) crude oil contract increased 6 percent on the week, from $96.04 per barrel (or $16.56 per MMBtu) to $102.27 per barrel (or $17.63 per MMBtu). Wednesday was the first time since September 30, 2008, that the WTI price has gone over $100 per barrel.
• The number of natural gas rigs, as reported February 25 by Baker Hughes Incorporated, rose by 1 to 906.

At most trading locations, prices declined moderately over the week. At the Henry Hub, the spot price fell 4 cents from $3.83 per MMBtu to $3.79 per MMBtu. Declines in the Rocky Mountains were somewhat more pronounced than other price decreases in the country, with most prices in the area falling by 10 cents or more. The Northwest Sumas trading point posted a decline of 44 cents.

In the Northeast United States, price changes were mixed. A few trading locations posted declines (at the Iroquois Waddington pricing point, the spot price declined on the week from $11.24 per MMBtu to $9.88 per MMBtu), but most prices increased, some by more than a dollar per MMBtu. Northeast prices currently range from below $4 per MMBtu to above $10 per MMBtu. At Transcontinental Pipeline’s Zone 6 trading point for delivery into New York City, prices fell on the week by 42 cents, from $8.38 on February 23 to $7.96 on March 2. At the Algonquin Citygate, on the other hand, prices rose $1.49 per MMBtu from $8.80 to $10.29 per MMBtu. Average temperatures in the Northeast varied across the area, from the 40s in parts of Pennsylvania to the 20s in upstate New York and areas of New England.

Natural gas consumption increased, according to estimates from BENTEK Energy Services, LLC. Total consumption, according to BENTEK estimates, increased 5 percent from the previous week. Residential and commercial consumption made up the bulk of the increase, rising 6 percent from the previous week. Consumption of natural gas for electric power generation rose 13 percent, while industrial consumption fell slightly from last week. Consumption in the residential and commercial sectors likely was bolstered by cold temperatures in the Northeast United States.

Natural gas supply showed no change from week to week, as weakness in imports offset strength in production. On Monday, February 28, daily production was 63.1 billion cubic feet (Bcf), the highest number BENTEK has on record in the 6 years for which it has daily data. Total production for the week was slightly higher than last week, and 6 percent greater than the same week last year. Imports from Canada declined by 1 percent this week, and were 17 percent lower than their level last year. LNG imports continued to show weakness, falling 14 percent from their levels last week.

Oil prices have risen over the past several weeks, while natural gas prices have remained relatively unchanged. The ratio of oil to natural gas prices (dollars per barrel of oil to dollars per MMBtu of natural gas) has risen to historically high levels. On February 24, the ratio of the Brent and WTI crude oil prices to the Henry Hub natural gas price was 29.7 and 25.0, respectively. Over 2010, the ratio of the Brent and WTI crude oil prices to the Henry Hub price averaged 18.7 and 18.6.

At the NYMEX, the price of the April 2011 natural gas contract fell slightly. The April 2011 contract (which moved into the near-month position on Friday, February 25) fell about 12 cents from $3.936 per MMBtu last Thursday to $3.818 yesterday. The March contract expired at $3.793 per MMBtu, having fallen about 12 percent during its time as the near-month contract. The value of the 12-month strip (the average of the 12 contracts between April 2011 and March 2012) fell from $4.34 per MMBtu last Wednesday to $4.25 yesterday.

Working natural gas in storage fell to 1,745 Bcf as of Friday, February 25, according to EIA’s WNGSR (see Storage Figure). The 85 Bcf draw was much smaller than the 5-year average draw for the week of 131 Bcf and last year’s draw of 124 Bcf. Stocks were 9 Bcf below last year’s level and 15 Bcf below the 5-year average of 1,760 Bcf.

In the Producing Region, working gas in storage increased by 9 Bcf. This was the first net injection during the month of February in the Producing Region since the week ending February 13, 2009, when stocks in the Producing Region increased by 13 Bcf. Working inventories in the region have only increased a handful of times in the month of February for the 17 years for which EIA has data.

Temperatures in the lower 48 States during the week ending February 17 were warmer than normal and also warmer than last year. The National Weather Service’s degree-day data show that the temperature in the lower 48 States last week averaged 40.3 degrees, 1.7 degrees warmer than the normal temperature and 3.3 degrees warmer than last year (See Temperature Maps and Data). Every region of the country was warmer than normal except the New England, Mountain, and Pacific census divisions, which were colder than normal. Heating degree-days nationwide were about 5 percent below average, and 10 percent below last year.

EIA Releases December 2010 Natural Gas Monthly. On February 28 EIA released the Natural Gas Monthly, which includes data through December 2010. This is EIA’s first set of historical natural gas data for all of 2010, although data are not considered final until the Natural Gas Annual is released. In December 2010, marketed production of natural gas hit its highest recorded December level, at 63.8 Bcf per day. Production rose only slightly from its November level of 63.6 Bcf per day, but was considerably higher than the December 2009 level of 58.1 Bcf per day. The natural gas wellhead price rose to $4.07 per MMBtu from its November level of $3.43 per MMBtu, an increase of almost 19 percent. However, compared to previous Decembers, the 2010 December price level was relatively low. Total natural gas consumption rose this December to 87.9 Bcf per day, a 38 percent increase from November levels. Heating degree-days in December were greater than normal. Consumption rose in all of the major consuming areas (residential, commercial, industrial, and electric power), but residential and commercial consumption (driven primarily by heating degree-days) made up the bulk of the increase from November to December.

Major Energy Producers’ Net Income Falls in 2009. On February 25, EIA released Performance Profiles of Major Energy Producers 2009, a publication reviewing financial and operating data for major oil and natural gas producers and petroleum refiners. Among the report’s major findings:

• Net income of companies that reported fell by 66 percent from $88 billion in 2008 to $30 billion in 2009, the result of declining energy prices. Net income in 2009 was at its lowest level since 2002.
• The reporting companies earned a 5-percent return on stockholder’s equity (ROE) in 2009, 4 percentage points below the average ROE of the Census Bureau’s All Manufacturing Companies.
• Oil and gas production were the most profitable segment of the surveyed companies. The refining and marketing segment fared the worst, reporting a $7 billion net loss for 2009.
• Both cash flow and capital expenditures declined substantially in 2009, and upstream expenditures fell year-over-year but remained at historically high levels.
• Oil and gas production and reserves both increased; and finding and lifting costs declined.
• Refining/marketing capital expenditures declined but still remained high in 2009, and U.S. refinery capacity for surveyed companies increased by 2 percent. Surveyed companies made up 78 percent of U.S. refining capacity in 2009. For this year’s report, 30 major energy companies reported their financial and operating data to EIA. The number of companies reporting increased by 3 from 2008, to include Alon USA, Chalmette Refining LLC, and Western Refining, Inc.

• On March 1, Daughin Island Gathering Partners issued a critical notice initially stating that Tri-States NGL Pipeline, operated by BP Pipeline, experienced a rupture and has been shut in “for undeterminable time”. All gas plants delivering product to Tri-States have been given notice to shut in. Because most of Daughin Island Gathering Partners production is processed at the DCP Mobile Bay Processing plant, they are required to shut in all offshore production with the exception of VK 826 gathered gas which has been rerouted. According to BENTEK Energy, because of these shut-ins gas receipts onto Destin pipeline in offshore Mississippi went to zero March 1 from close to 540 MMcf per day on Feb. 28, as Destin has to interrupt operations to all offshore platforms.
  Subsequently, Daughin Island Gathering Partners clarified the reasons for Tri-States Pipeline’s shut-in stating that it is due to an inspection following “unauthorized vehicle activity by a third party” within the pipeline’s right-of-way near Kiln, MS. They are exercising “an abundance of caution” and there is no indication of a leak.
  
• On Thursday, February 24, El Paso reported that the start date of its Ruby Pipeline has been delayed, with service now expected to start in July. The pipeline has been delayed twice by weather and permitting issues. In January, El Paso reported that the start date was expected to be in June. Ruby pipeline was designed to transport production from the Rocky Mountains to West Coast markets. The initial design capacity of Ruby Pipeline is 1.5 Bcf per day, and will run 680 miles from the Opal Hub in Wyoming and terminate at interconnects near Malin, Oregon.
  
• On February 28, Florida Gas Transmission began pipe maintenance on the East White Lake Lateral (immediately upstream of Station 75), with work expected to continue until the end of March. Florida Gas Transmission will schedule 150,000 MMBtu per day from their East White Lake South Group, 300,000 MMBtu per day lower than their normally scheduled volume. Florida Gas Transmission is also performing other maintenance projects for the month of March: maintenance on the mainlines upstream of Station 9, impacting throughput by 200,000 MMBtu per day; pipeline and compressor station maintenance/upgrades between Stations 11 and 15, reducing scheduled volumes by 350,000 MMBtu per day; pipeline and compressor station maintenance/upgrades between Stations 24 and 27, reducing scheduled volumes by 200,000 MMBtu per day.

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.