Natural Gas

• The past week was characterized by passing of the earlier week’s heat wave. The Henry Hub price decreased 31 cents per million Btu (MMBtu) for the week (6.4 percent) to close at $4.52 per MMBtu on June 15.
  
• During the midst of the heat wave, working natural gas in storage last week rose to 2,256 billion cubic feet (Bcf) as of Friday, June 10, according to the U.S. Energy Information Administration’s (EIA) Weekly Natural Gas Storage Report (WNGSR). The implied increase for the week was 69 Bcf, leaving storage volumes positioned 275 Bcf below year-ago levels.
  
• At the New York Mercantile Exchange (NYMEX), the July 2011 natural gas contract price lost every day of the week, closing at $4.577 per MMBtu on Wednesday.
  
• The natural gas rotary rig count, as reported June 10 by Baker Hughes Incorporated, fell by 8 to 879 active units, continuing the trend of recent weeks. Meanwhile, oil-directed rigs were up 10 to 969, maintaining the disparity between the two drilling strategies.

At the NYMEX, the price of the July 2011 contract dropped 27.0 cents (5.6 percent) over the week from $4.847 per MMBtu last Wednesday to $4.577 per MMBtu yesterday. But on Wednesday evening last week, just before 8:00 PM ET, the July futures contract plunged 33.7 cents (6.9 percent), in a mysterious “flash crash,” ignoring real-world market fundamentals. The price fireworks were attributed to either a trader entering an accidental extra zero on a sell order (“fat finger syndrome”) or a black-box automated trading algorithm that had its buy/sell signals crossed.

Passing of the heat wave that reduced natural gas cooling load consumption was likely the chief catalyst contributing to price weakness this week. According to estimates from BENTEK Energy Services, LLC, domestic gas consumption decreased this week by 4.6 percent over last week. The power sector showed the largest absolute and percentage decrease at 9.6 percent in response to diminishing air conditioning load demand created by the heat wave. Keeping with the trend, the residential/commercial sector fell a more modest 1.4 percent. The lone bright spot for consumption was the industrial sector which posted a 1.0 percent consumption increase during the week.

The Henry Hub price reflected the price softness by dropping 6.4 percent from $4.83 per MMBtu last week to close at $4.52 per MMBtu yesterday. As the accompanying table shows, the Henry Hub price actually had small gains on two days during the week.

End-market natural gas prices followed the lead of their wholesale counterparts and dropped much more vigorously from higher levels. For example, the New York citygate fell by 2.59 per MMBtu to close at $4.76 per MMBtu. Likewise, the Chicago citygate decreased a more modest $0.32 per MMBtu and ended the week at $4.60 per MMBtu.

According to BENTEK Energy estimates, the week’s average total nominal gas supply reflected a 0.4 percent decrease from last week’s level. Domestic weekly gas production averaged over 64.2 Bcf per day, down 0.6 percent. Production held above 64 Bcf per day all but one day during the week. Domestic production now stands 7.0 percent above this time last year. The week’s production drop was offset somewhat by a 2.8 percent increase in Canadian imports, which averaged just under 5.6 Bcf per day. Canadian imports now stand 11.0 percent below year-ago volumes. Supply also abated slightly for liquefied natural gas (LNG) where imports eased to 0.8 Bcf per day during the week, but remain 39.7 percent below year-ago levels.

Working natural gas in storage rose to 2,256 Bcf as of Friday, June 10, according to EIA’s WNGSR (see Storage Figure). For the third week in a row, the net build of 69 Bcf was lower than both the 5-year average build for the week of 87 Bcf and last year’s build of 89 Bcf. Stocks are now 275 Bcf below last year’s level and 76 Bcf below the 5-year average.

The Producing Region had a net build of just 6 Bcf for the week. This is the smallest build for the region since the week ending April 1. Nevertheless, the Producing Region remains 109 Bcf above the 5-year average. The East and West Regions also experienced lower builds than normal and now stand 133 Bcf and 52 Bcf less than the 5-year average.

Temperatures in the lower 48 States during the week ending June 9 were hotter than normal and slightly warmer than last year. The National Weather Service’s degree-day data show that the temperature in the lower 48 States last week averaged 72.4 degrees, 4.0 degrees warmer than the 5-year average and 1.0 degrees above last year (see Temperature Maps and Data). For the third straight week, every region of the country except for the Mountain and Pacific Regions in the West was hotter than normal. Temperatures in the Midwest were particularly elevated at 9.0 degrees above normal in the East North Central and 8.4 degrees above in the West North Central. Cooling degree-days for the country were 57.5 percent above normal.

EIA Data Show Natural Gas-Fired Generation in March up 5.0 Percent from the Previous Year. EIA released the June 2011 edition of the Electric Power Monthly on June 9, 2011, which showed net generation in the United States increased by 2.0 percent from March 2010 to March 2011. The average temperature for the month across the contiguous United States was 1.4 degrees F above the long-term average, while March was the second wettest on record for the Northwest. As a result, the rise in conventional hydroelectric generation was by far the largest absolute “fuel-specific” increase, up 10,759 thousand megawatthours (MWh) or 52.2 percent. Natural gas-fired generation showed the second-largest increase over March 2010, up 5.0 percent or 3,131 thousand MWh. Increased gas-fired generation in Pennsylvania and Ohio accounted for 78.8 percent of the national jump in gas-fired generation. At the same time, the largest fuel-specific decline for March 2011 relative to March 2010 was in coal-fired generation, down 6.9 percent or 9,988 thousand MWh.

Gulf LNG to Receive First Cargo Today. The new Gulf LNG terminal, located in the Port of Pascagoula, Mississippi, is expected to receive its first two commissioning cargos this week and next. The first, a cargo from Trinidad, is expected to arrive today; and the second, a cargo from Egypt, will arrive around June 21, according to reports from BENTEK Energy and other media. The terminal is a joint venture of El Paso Corporation, Crest Group, and Sonangol Group, Angola’s national oil company. The facility has baseload sendout capacity of 1.2 Bcf per day, and will have pipeline interconnections with Gulfstream and Destin Pipelines.

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.