Natural Gas Weekly Update - Printer-Friendly Version
Natural Gas Weekly Update Text
Released: May 5, 2011 at 2:00 P.M.
Next Release: Thursday, May 12, 2011
Overview (For the Week Ending Wednesday, May 4, 2011)

  • Wholesale natural gas prices at market locations in the lower 48 States moved higher this week as cold weather persisted in some consuming regions. Prices also increased at the beginning of the report week as the U.S. Energy Information Administration (EIA) released data (on April 28) showing the refill of storage inventories following last winter has proceeded slower than in recent years. During the report week (April 27-May 4), the Henry Hub spot price increased $0.24 to $4.59 per million Btu (MMBtu).

  • At the New York Mercantile Exchange (NYMEX), futures prices increased during the report week, also likely in response to lower storage levels. The futures contract for June 2011 delivery increased by 17 cents per MMBtu on the week to $4.58 per MMBtu.

  • Storage inventories as reported by EIA today (May 5) are still below the 5-year average for this time of year. As of Friday, April 29, working gas in underground storage was 1,757 billion cubic feet (Bcf), which is 1.0 percent below the 5-year (2006-2010) average, according to the Weekly Natural Gas Storage Report (WNGSR).

  • The U.S. natural gas rotary rig count increased last week by 4 to 882, according to data reported by Baker Hughes Incorporated. However, the number of rigs drilling for natural gas is still far below the number at this time last year, when producers had deployed 958 rigs. Although rigs drilling for natural gas dominated the overall rig count for years in the United States, more recently producers are choosing to target oil formations because of the higher value of oil relative to natural gas at current prices. As of April 29, Baker Hughes recorded 926 rigs drilling for oil in the lower 48.

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

Natural gas wholesale prices moved higher this report week as demand remained elevated relative to previous years and the refill of storage inventories was slower than in previous years. Compared with the same time period last year, U.S. natural gas consumption increased about 10.3 percent, and exceeded 57 Bcf per day in each of the last three days, according to BENTEK Energy Services, LLC. Combined consumption in the residential and commercial sectors was close to 54 percent higher than last year at an average of 19 Bcf per day during the report week. Amid this environment of relatively high consumption (although it was slightly lower than the prior week), prices this report week increased generally less than 30 cents per MMBtu at markets in the lower 48 States, with the exception of higher increases at markets in the Northeast. The Henry Hub price increased on the week by $0.24 per MMBtu, or 5.5 percent, while prices at other markets in the Gulf of Mexico producing region showed similar increases. Lingering heating-related demand, as well as increasing demand from electric power generators to meet air-conditioning needs, has resulted in a strengthening in prices from late winter, when the Henry Hub price was below $4 for several weeks. The Henry Hub price has also increased almost 16 percent relative to last year at this time, when it was still trading below $4 per MMBtu. (On May 4, 2010, the average price was $3.96.)

Price increases in the Northeast were the highest in the country, with prices at a number of markets in New York and New England ending the report week above $5 per MMBtu. For delivery in Zone 6 (New England) off Tennessee Gas Pipeline (TGP), the price yesterday averaged $5.29 per MMBtu, which was 12 percent higher, or $0.57 more than the previous Wednesday’s price. In trading yesterday, the Tennessee Zone 6 price was 70 cents per MMBtu higher than the Henry Hub’s, a significant increase from the differential of just 37 cents a week prior. The closely-watched difference in the Northeast price over Gulf of Mexico regional prices tends to fluctuate with changes in local weather conditions and availability of capacity on interstate pipelines. The higher differential in the Northeast this week likely also occurred owing to maintenance on TGP that required shippers to balance in the Northeast. Maintenance also began at the Canaport LNG facility in eastern Canada, which is limiting send-out from the facility in May. Canaport has provided a steady stream of regasified LNG into the Northeast market in recent months.

West of the Mississippi River, price increases ranged between 17 to 33 cents per MMBtu as lingering cold weather likely kept furnaces on in the Rockies and Midcontinent, at least at night. The price for supplies at Opal, Wyoming increased 22 cents per MMBtu to $4.35 per MMBtu. Yesterday’s price for natural gas off of Colorado Interstate Pipeline was $4.35 per MMBtu, which represented an increase of $0.21 cents per MMBtu on the week. Similar price increases occurred at markets in California and the Midcontinent.

U.S. net pipeline imports from Canada were significantly lower during the report week in comparison with the prior week, continuing a trend since the beginning of the year. According to BENTEK, which monitors flows on the continental pipeline network, net imports from Canada during the report week decreased 4.3 percent relative to the prior week and ended the week below 6 Bcf per day. Both Canadian and liquefied natural gas (LNG) imports are significantly lower than the prior year at this time, likely as a result of continuing supply strength from domestic drilling, particularly in the shale formations. Pipeline and LNG imports during the report week were, respectively, 8.2 percent and 73.8 percent lower than last year at this time.

Spot Prices

At the NYMEX, the price of the contract for June delivery increased 17 cents per MMBtu during the report week. The price of the June contract reached as high as $4.70 during the report week, which was the highest closing price for a near-month contract since January 2011. While the price of contracts through the summer experienced similar increases on the week, prices for next winter declined by slightly less (an average of 14 cents). As of yesterday, the 12-month strip, which is the average for natural gas futures contracts over the next year, was priced at $4.90 per MMBtu, an increase of about 15 cents, or 3.1 percent, since last Wednesday.

Wellhead Prices
Annual Energy Review
More Price Data

Working natural gas in storage rose to 1,757 Bcf as of Friday, April 29, according to EIA’s WNGSR (see Storage Figure). The 72-Bcf net injection was slightly smaller than last year and the 5-year average injections. Stocks continue to run below the 5-year (2006-2010) average of 1,774 Bcf despite high domestic production. Stocks last year at this time were 11.4 percent higher at 1,983 Bcf.

This week saw the largest net builds so far this year in all three regions. Nevertheless, only the Producing Region build of 24 Bcf was greater than the 5-year average build of 21 Bcf for the week. The East and West Regions continued to lose ground to the 5-year average and now sit at 98 Bcf (12 percent) and 41 Bcf (14 percent) below average, respectively. The Producing Region is 120 Bcf (17 percent) above average.

Temperatures in the lower 48 States during the week ending April 28 averaged 59.1 degrees, 2.9 degrees warmer than normal and 3.6 degrees warmer than last year. According to the National Weather Service’s degree-day data, temperatures were above average in the Northeast and South, mixed in the Midwest, and below average in the West (see Temperature Maps and Data). Gas weighted heating degree days were 12.7 percent below normal for the week, but cooling degree days were more than twice normal. As national temperatures continue to rise, cooling degree days will begin to have a major impact on natural gas storage figures, as high power demand is often driven by high temperatures during the summertime.

Storage Table

More Storage Data
Other Market Trends

Natural Gas Marketed Production was at 62.6 Bcf per day in February. On April 29, EIA released the April Natural Gas Monthly, which includes data through February 2011. Marketed production fell slightly to 62.6 Bcf per day from its January level of 63.6 Bcf per day. Compared to February 2010, however, production was about 3 percent higher. February consumption dropped somewhat from January levels to 81.4 Bcf per day, compared with 86.6 Bcf per day in January. Declines in residential and commercial consumption accounted for most of the decline in overall consumption. Consumption of natural gas for electric power fell slightly and industrial consumption increased slightly. Wellhead prices rose from January to February, increasing for the third consecutive month, from $4.19 per MMBtu to $4.35 per MMBtu.

Natural Gas Transportation Update

  • Kinder Morgan’s Rockies Express pipeline (REX) declared a force majeure on its Julesburg, Colorado compressor station on May 3. The force majeure, which remains in effect, was called due to critical damage to Unit #2’s variable frequency drive transformer that will require a complete replacement, according to the pipeline. In a notice update, the pipeline stated that removal of the damaged transformer has commenced, and its replacement is in route. Until further notice, REX will be scheduling down quantities through Segment 240 to 1,550 thousand decatherms (dth) per day. Due to the reduced level, REX warned shippers that nominated volumes are at risk of not being fully scheduled. Estimated return to service of the compressor is tentatively scheduled for May 8.

  • Williams Partners announced on May 2 that two expansions on its Transcontinental natural gas pipeline were placed into service on May 1. These expansions add a combined 598,500 dth per day of firm transportation capacity to serve markets in the Southeast. According to the announcement, the Mobile Bay South II expansion project adds 380,000 dth per day of southbound firm transportation capacity on the Mobile Bay Lateral from Transco's mainline at Station 85 near Butler, Alabama, to its interconnect with Gulfstream Natural Gas System in Coden, Alabama. The second expansion project placed into serviced added 218,500 dth per day, and was the second phase of the company’s 85 North expansion project. This new capacity will serve electric power generating facilities in North Carolina. (Phase I of the 85 North expansion went into service July 2010 and added 90,000 dths per days to markets in Alabama.)

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.