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Natural Gas Weekly Update Archive

for week ending May 25, 2011  |  Release date:  May 26, 2011   |  Previous weeks

Released: May 26, 2011 at 2:00 P.M.
Next Release: Thursday, June 2, 2011
Overview (For the Week Ending Wednesday, May 25, 2011)

  • Warmer weather moved into major population centers this report week, increasing demand at electric power plants in order to meet air-conditioning needs. Prices moved higher at most trading locations in the lower 48 States, with the biggest increases occurring in the Southeast. During the report week, the Henry Hub spot price increased $0.21 to $4.36 per million Btu (MMBtu).
  • At the New York Mercantile Exchange (NYMEX), futures prices also increased as the weather outlook suggested higher weather-related consumption for the remaining days of May. The futures contract for June delivery climbed $0.18 on the week to $4.38 per MMBtu. Upward pressure on prices at the NYMEX also appeared related to a decrease in the number of rigs drilling for natural gas over the last couple weeks.
  • As of Friday, May 20, working gas in underground storage was 2,024 billion cubic feet (Bcf), which is 1.3 percent below the 5-year (2006-2010) average. The implied net injection from storage was 105 Bcf.
  • The number of rigs drilling for natural gas continued to decline, although the decrease slowed from the prior week. According to data reported by Baker Hughes Incorporated, the number of active rigs decreased by 8 to 866 for the week ending May 20. The natural gas rig count is at its lowest level in more than a 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

Summer-like temperatures of more than 90 degrees blanketed the South this week, resulting in higher natural gas consumption in the electric power sector. Overall U.S. consumption increased 1.8 percent for the report week (Wednesday-Wednesday, May 17-25) to an average of 53.8 Bcf, according to BENTEK Energy Services, LLC. In the electric power sector, consumption grew 19 percent, peaking at over 21 Bcf on Tuesday, May 24. As often occurs during the cooling season, the weather this week translated into higher prices for natural gas on the wholesale spot markets. The Henry Hub price averaged $4.18 per MMBtu yesterday, which was 5.1 percent higher (or $0.21 per MMBtu) than the price of $4.15 at the beginning of the report week. Elsewhere in States surrounding the Gulf of Mexico, price increases during the week were generally between $0.18 and $0.30 per MMBtu. The price at the Houston Ship Channel in East Texas increased by $0.19 on the week to $4.29 per MMBtu, while the price at Transcontinental Gas Pipe Line (Transco) Station 65 in Louisiana increased by $0.21 to $4.34 per MMBtu.

The pace of U.S. domestic production continued to exceed prior-year levels by about 6 percent. Supplies from shale gas fields such as the Marcellus Shale in the Northeast/Appalachia region and the Haynesville Shale in Louisiana helped boost domestic production above 64 Bcf per day on average during the report week. Domestic production has not declined substantially despite reductions in overall rig counts compared with this time last year, likely in part because of greater efficiencies in the drilling process and the large initial production levels at shale fields under development. In fact, U.S. domestic production is 5.8 percent higher in comparison with this time last year, according to BENTEK statistics. The natural gas rotary rig count, according to data reported by Baker Hughes Incorporated on May 20, meanwhile has fallen by about 5 percent since the beginning of 2011 and is at its lowest level in more than a year. Deployment of horizontal rigs, which are often used in shale formations, continues to occur at a feverish pace. The horizontal rig count (which includes both oil and natural gas) dropped only slightly from 1,041 last week, which was the highest level of rigs drilling horizontally in the 20 years for which Baker Hughes has data. The horizontal rig count was 1,038 for the week ending May 20, a decrease of 3 from the previous week.

In the Northeast, prices increased by as much as 6 percent on the week, as temperatures in parts of the region turned summer-like. Many points in the Northeast region posted increases of more than $0.20 per MMBtu on the week. For delivery in Zone 6 into New York off Transco, the price increased by $0.27 per MMBtu to an average of $4.71 by the end of the report week. Prices this week at the New York market center were the highest in about 3 weeks. The New York price was $0.35 higher than the Henry Hub price yesterday, while during the previous report week it had dropped to as low as $0.23.

Price increases were more moderate at markets west of the Mississippi River during the report week. Nonetheless, prices in the Rockies bounced back above $4 per MMBtu. The price at Opal, Wyoming, increased by $0.12 on the week to $4.08 per MMBtu. The price for delivery to Colorado Interstate Gas (CIG) was lowest in the county after increasing $0.10 per MMBtu on the week to $4.04. Although prices in the Rocky Mountains are generally the lowest in the country, discounts of Rockies prices to other markets have grown less in the past two years. To date in 2011, the CIG price has averaged about $0.20 lower than the Henry Hub, compared to $0.32 less in 2010 and $1.33 less in 2009. The lessening differential is the result in part of increased pipeline capacity between the Midcontinent and Rocky Mountains through such pipeline projects as the Rockies Express Pipeline. Current low Rockies prices are likely in part related to decreased power demand in the Northwest, where power from dams this year is plentiful. In fact, several instances of negative power prices (a situation in which parties are paid to use power) have been recorded in the region as a result of wet weather and melting snow.

Net imports of natural gas continue at much lower levels than in previous years, likely as a result of higher U.S. domestic production and relatively low gas prices. During the report week, net Canadian imports averaged 5.3 Bcf per day, which is 20.7 percent lower than the same week in 2010. Sendout from U.S. liquefied natural gas (LNG) import terminals averaged about 1.1 Bcf per day during the report week, or 8.2 percent lower than the same week in 2010. The lower level of U.S. LNG imports this year is the result of much higher prices being available to suppliers of LNG in regional markets in Europe and Asia. Following the nuclear crisis in Japan (which will likely result in higher demand for LNG) and conflict in North Africa, the difference in prices in the United States and other world markets has increased even more. Currently, however, the extent to which this will affect future deliveries of LNG to the United States is unclear.

Spot Prices

At the NYMEX, the price of the near-month contract (for June delivery) increased $0.18 per MMBtu during the report week to $4.38 per MMBtu. The increase was attributable chiefly to the expectation of higher temperatures continuing in major consuming regions of the country. Upward price pressure also appears related to the lower rig count reported by Baker Hughes. The June 2011 contract is currently priced about 5.4 percent higher than the expiration price of $4.16 per MMBtu for the June 2010 contract. At the end of trading yesterday, the 12-month strip, which is the average for natural gas futures contracts over the next year, was priced at $4.71 per MMBtu, an increase of about $0.13, or 2.8 percent, since last Wednesday.

Wellhead Prices
Annual Energy Review
More Price Data

Working natural gas in storage rose to 2,024 Bcf as of Friday, May 20, according to EIA’s WNGSR (see Storage Figure). The 105 Bcf net build is the first triple digit build of the year. It is larger than the 5-year average build for the week of 95 Bcf and last year’s build of 100 Bcf. This marks the second week in a row that stocks have built faster than both last year and the 5-year average. Stocks are now 230 Bcf below last year’s level but just 26 Bcf below the 5-year average.

Regional builds varied significantly. While the Producing Region saw a very strong build relative to the 5-year average, the East and West Regions built slightly less than average. Regional year-over-year stock levels continue to diverge with the Producing region 61 Bcf above last year but the East and West Regions at 179 Bcf and 112 Bcf below, respectively.

Temperatures in the lower 48 States during the week ending May 9 were cooler than normal and also cooler than last year. The National Weather Service’s degree-day data show that the temperature in the lower 48 States last week averaged 58.7 degrees, 3.6 degrees colder than the 5-year average and 3.7 degrees colder than last year (see Temperature Maps and Data). Every region of the country was colder than normal with the exception of the Middle Atlantic Census region.

Storage Table

More Storage Data
Other Market Trends

DOE Approves Sabine Pass’ LNG Export Plan. On May 20, the DOE issued conditional authorization to Cheniere Energy’s application to export LNG from its Sabine Pass terminal in Louisiana. Cheniere plans to retrofit the existing import terminal to give it liquefaction capability. Cheniere has been authorized to export up to 2.2 Bcf/d of natural gas from the facility for a period of 20 years. Construction is expected to begin in 2012, and operations in 2015. DOE’s authorization is conditional upon final approval by the Federal Energy Regulatory Commission. On September 10, 2010, DOE approved export of LNG from Sabine Pass to 15 countries with which the United States has a free trade agreement covering natural gas. The May 20 authorization is the first long-term authorization to export natural gas from the lower 48 States as LNG to all U.S. trading partners.

Natural Gas Transportation Update

  • The Canaport LNG facility in New Brunswick, which consistently sends re-gasified supplies into the U.S. Northeast market through the Maritimes and Northeast Pipeline (M&NE), re-opened following a month-long closure for maintenance. Maintenance activities included work on a valve within the process equipment as well as the inspection of other equipment throughout the facility. According to the company, work on this valve will increase the terminal’s operational flexibility and will allow it to reach its full send-out capacity of 1.2 Bcf per day. Meanwhile, MN&E this week informed shippers that volumes from Eastern Canada will likely be reduced in June because the Sable Offshore Energy Project will undergo a planned outage lasting approximately one week. During this outage, no supply will be available from Sable to flow on the pipeline system, M&NE said.
  • ANR Pipeline Company on Tuesday said it had begun repairs at its compressor station in Portland, Indiana. This maintenance will limit northbound capacity by 190 million cubic feet (MMcf) per day, leaving 919 MMcf per day available through Friday. Based on current nominations, it is anticipated that the reduction may result in the curtailment of lower priority services, the pipeline said.
  • A temporary cool down in Florida led to interstate pipeline companies warning shippers of the need to balance nominations for receipt and delivery. Gulfstream Natural Gas System, L.L.C.’s (Gulfstream) line pack is currently at the high end of Gulfstream’s range of acceptable operating levels, according to company officials. Meanwhile, company representatives of Florida Gas Transmission LLC (FGT), reported that milder temperatures are forecasted in Florida for the next couple of days. FGT notified its customers that it could possibly issue an Underage Alert Day on one of the upcoming gas days.

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.