Natural Gas Weekly Update

Natural Gas Weekly Update Text
Released: March 31, 2011 at 2:00 P.M.
Next Release: Thursday, April 7, 2011
Overview (For the Week Ending Wednesday, March 30, 2011)

  • Cooler-than-normal temperatures helped to briefly lift natural gas cash market prices at nearly all domestic pricing points during the middle of the week, after which general price declines continued. For the week ending March 30, the Henry Hub price rose a token 7 cents per million Btu (MMBtu) (1.7 percent) to $4.25 per MMBtu.

  • Working natural gas in storage rose to 1,624 billion cubic feet (Bcf) as of Friday, March 25, according to the Energy Information Administration’s (EIA) Weekly Natural Gas Storage Report (WNGSR). The implied increase for the week was 12 Bcf, with storage volumes positioned 12 Bcf below year-ago levels.

  • At the New York Mercantile Exchange (NYMEX), the May 2011 natural gas contract price lost 5.7 cents from the previous Wednesday, reaching $4.355 per MMBtu after peaking last Friday.

  • The natural gas rotary rig count, as reported March 25 by Baker Hughes Incorporated, rose by 5 to 880 active units, ending a five-week slide. This activity level stands 61 units less than 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

Prevailing natural gas prices resumed their decline during the week except for a brief reversal around the end of last week when a brief cold snap passed. The New York citygate was reflective of pricing points showing an overall loss for the week falling from a level of $5.48 per MMBtu last Wednesday to $4.87 per MMBtu yesterday. However, during the week, the New York citygate price jumped $0.47 per MMBtu when a cold snap passed, hitting a peak of $5.95 per MMBtu on Thursday before giving back $1.08 of the gain this week. The Chicago citygate was also representative of the general weekly trend and dropped from $4.41 per MMBtu the previous Wednesday to $4.40 per MMBtu yesterday.

Spot Prices

At the NYMEX, the price of the May 2011 contract decreased 5.7 cents (1.3 percent) over the week from $4.412 per MMBtu to $4.355 per MMBtu after peaking on Friday. The NYMEX price has declined in 2 of the past 3 trading sessions.

The Henry Hub price followed the general direction of the NYMEX, but was much more muted, rising 1.7 percent from $4.18 per MMBtu and ending the week slightly up at $4.25 per MMBtu. The Henry Hub price has resumed its general decline since peaking on Monday.

An overall increase in natural gas consumption, primarily due to colder temperatures during the week, was likely the prime catalyst causing the price spike and briefly stemming the general trend in softening natural gas prices. According to estimates from BENTEK Energy Services, LLC, domestic consumption this week increased by a robust 23.2 percent from the previous week. A large jump in the residential/commercial sector of 41.1 percent led the increase, followed by gains of 14.9 percent and 5.0 percent, respectively, in the power and industrial sectors.

According to BENTEK estimates, the week’s average 68.1 Bcf per day of total nominal gas supply represented an increase of 2.0 percent from last week’s value. Domestic gas production was 63.8 Bcf, up 0.9 percent, accounting for the bulk of the increase. BENTEK notes that more new daily production records were set during the week. Canadian imports averaged about 6.3 Bcf per day, representing an increase of about 1 Bcf per day (14.9 percent) for the week, and now stand 3.2 percent above year-ago levels likely due to increasing productivity of new wells in Canada. Supply also picked up slightly in the liquefied natural gas (LNG) arena, where imports (less than 1 Bcf per day) increased 2.4 percent above last week but remain 27.3 percent below the corresponding week last year.

Wellhead Prices
Annual Energy Review
More Price Data

Working natural gas in storage rose to 1,624 Bcf as of Friday, March 25, according to EIA’s WNGSR (see Storage Figure). After a 12-Bcf injection, the first injection of 2011, stocks are now 68 Bcf above the 5-year average. This marks the sixth week in a row of either lower draws or higher injections than average. Stocks remain 12 Bcf below last year, however, after matching last year’s injection for the same week.

The injection last week was entirely the result of a significant stock build in the Producing Region. The 25 Bcf injection in the Producing Region was partly offset by draws of 7 Bcf and 6 Bcf in the East and West Regions respectively. It is normal for the Producing Region to see consistent stock builds in March while the East Region will usually continue to draw into the start of April, especially if cold weather continues. The West Region actually had a small injection the week before, but unusually cold weather in parts of the region was responsible for the latest draw.

Temperatures in the lower 48 States during the week ending March 24 were about 3 degrees warmer than normal and nearly equal to last year. The National Weather Service’s degree-day data show that the temperature in the lower 48 States last week averaged 49.1 degrees (see Temperature Maps and Data). There were extremely large regional differences. The East South Central and West South Central Regions were about 9 and 10 degrees above normal respectively while the Pacific Region experienced weather about 6 degrees below normal.

Storage Table

More Storage Data
Other Market Trends

Natural Gas Production Remains Robust in January. On March 29, EIA released the Natural Gas Monthly (NGM), which includes data through January 2011. According to the NGM, natural gas production hit 63.62 Bcf per day in January, the highest recorded level for the month, despite a number of well freeze-offs that occurred, causing it to fall slightly from the previous month. The January 2011 level represents an increase of 6.4 percent from the same month in 2010, and a decrease of less than 1 percent from December 2010. Total natural gas consumption rose about 5 percent from December 2010, increasing from 87.89 Bcf per day to 92.63 Bcf per day the following month. The bulk of the increase occurred in the residential and commercial sectors as homes and businesses used more natural gas for heating. Heating degree-days increased about 8 percent from the previous month and were greater than the 30-year normal for January. Consumption of natural gas for electric power generation dropped about 4 percent from December 2010, while industrial use increased about 3 percent. The average wellhead price rose from $3.85 per MMBtu in December 2010 to $3.97 per MMBtu in January, but remains below last January’s level of $5 per MMBtu.

Natural Gas Transportation Update

  • FERC granted permission to Florida Gas Transmission Co. LLC to start natural gas transportation services on the remaining facilities of the Phase VIII Expansion Project. According to the project’s website, Phase VIII will consist of approximately 483.2 miles of multi diameter pipeline in Alabama, Mississippi and Florida. One new compressor station will be built in Highlands County, Florida, that will add 213,600 horsepower to the existing mainline compression. The project will provide an annual average of 820,000 MMBtu per day of additional firm transportation capacity. The project is anticipated to be completed in the spring.

  • On March 29, Anadarko Petroleum’s Independence Hub has reduced production due to required safety testing on subsea equipment. According to BENTEK estimates, production was reduced by 300 million cubic feet (MMcf) per day from 528 MMcf per day to about 233 MMcf per day on March 29. On March 30, production edged up slightly, but was still down by 185 MMcf per day in comparison to normal outflow levels. The facility is expected to resume normal operations this week. Independence Hub, the largest natural gas processing facility in the Gulf of Mexico, has a design capacity of 1 Bcf per day. According to Anadarko, the hub spans 1800 square miles, in waters up to 9000 feet deep.

  • Southern Natural Gas Company has scheduled a shut-in test at the Muldon Storage Field in Mississippi for April 5 through April 11. Under the terms of Southern’s tariff, this test constitutes a Force Majeure event. As a result, Southern will allocate CSS rate schedule customers 36% of their contracted daily injection and daily withdrawal quantities. In the event notice, Southern stated that it will monitor nominations closely during the shut-in tests to “determine if there is an imbalance between anticipated supply and demand that would threaten the operation integrity of the system.”

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.