• Responding to extremely hot weather this week, natural gas prices moved up at market locations across the lower 48 States. The spot price at the Henry Hub increased 21 cents from $4.43 per million Btu (MMBtu) last Wednesday, July 13, to $4.64 per MMBtu yesterday, July 20.



• At the New York Mercantile Exchange, the price of the near-month futures contract (August 2011) increased from $4.403 per MMBtu to $4.500 per MMBtu.



• Working natural gas in storage rose to 2,671 billion cubic feet (Bcf) as of Friday, July 15, according to EIA’s Weekly Natural Gas Storage Report (WNGSR).



• The natural gas rotary rig count, as reported by Baker Hughes Incorporated on July 15, rose by 12 to 885 (see Other Market Trends).

Natural gas prices responded as a “heat dome” spread across much of the United States, bringing temperatures into the triple digits in many areas. In the Northeast, for example, average natural gas prices spiked to $9.13 per MMBtu at Transcontinental Pipeline’s Zone 6 point for delivery into New York City. The price from the previous Wednesday ($4.76 per MMBtu) nearly doubled. The largest price increases came at the end of the report week, as temperatures rose from hot to hotter. Price increases were somewhat more muted in other regions of the country, with the Henry Hub price rising 21 cents to end the report week at $4.64 per MMBtu.

Though the Pacific Northwest was an exception to the heat dome, prices remained relatively strong. Prices at the Northwest Sumas trading point, for example, rose about 23 cents on the week to $4.24 per MMBtu. Consumption of natural gas for power generation in the area remained very low, according to Bentek Energy Services, LLC, as continued strength in hydroelectric power generation has displaced the use of natural gas. El Paso Corp.’s Ruby Pipeline, which will bring gas from the Rockies to the Pacific Northwest, will open on July 27.

Pipeline imports from Canada helped to meet additional demand for natural gas for power generation this week. Canadian imports to the United States increased by 4.5 percent, according to data from Bentek. The Northeast saw the largest increase of the three regions tracked by Bentek, as imports rose by 5.7 percent, up to 1.7 Bcf on Wednesday. Northeast power burn rose to almost 8.5 Bcf on Wednesday (compared to 7.3 Bcf on Monday), and Bentek data indicate even higher power burn in the Northeast today.

Overall consumption of natural gas for electric power rose only 1.1 percent from the previous week, which was also hot, but like prices, power consumption spiked during the end of the report week. According to Bentek, natural gas consumed for power generation was above 30 Bcf for Tuesday and Wednesday, compared to a level closer to 25 Bcf during the beginning of the report week. Consumption overall rose about 3 percent on the week, and supply rose about 0.6 percent, according to Bentek data. Domestic production increased slightly by .2 percent, and topped 65 Bcf on Tuesday.

At the New York Mercantile Exchange, the price of the near-month futures contract (August 2011) increased from $4.403 per MMBtu to $4.500 per MMBtu. Similarly, the price of the 12-month strip (the average of all contracts between August 2011 and July 2012) rose slightly to $4.694 per MMBtu, from $4.663 per MMBtu the previous Wednesday.

Working natural gas in storage rose to 2,671 Bcf as of Friday, July 15, according to EIA’s WNGSR (see Storage Figure). After a 60 Bcf net build, stocks are now 59 Bcf below the 5-year average and 213 Bcf below last year. The build was less than the 5-year average build of 67 Bcf, making this the second consecutive week of below average builds. Last year saw a stock build of just 55 Bcf during the same week.

The Producing Region stands out this week for registering a 6 Bcf net draw. While draws during hot summer weather occur, they are not typical. The Producing Region remains the only region with storage levels above both the 5-year average and last year, though the latter difference has fallen to just 4 Bcf.

Temperatures in the lower 48 States during the week ending July 14 were warmer than normal but slightly colder than last year. The National Weather Service’s degree-day data show that the temperature in the lower 48 States last week averaged 77.1 degrees, 2.9 degrees warmer than normal, and 2.3 degrees warmer than last year (see Temperature Maps and Data). All regional temperatures were above normal levels with the exception of the Pacific region. Cooling degree-days were about 19 percent above normal.

Natural Gas Rig Count Up to 875. The natural gas rotary rig count rose by 12 to 875, according to data released on Friday, July 15 by Baker Hughes Incorporated.The number of natural gas rigs has been oscillating in the high 800s for several months, and this week’s increase is the largest since the end of May. Year-to-date, the natural gas rig count has dropped 4 percent. From the same week last year, rigs have fallen 10 percent. Oil-directed drilling rigs, on the other hand, have grown at a relatively high rate over the past two years, and have continued to rise to levels unseen in the 24 years for which Baker Hughes has data. This week, oil rigs rose to 1,013, their highest recorded level thus far. The growth in oil-directed rigs is likely a response to recent rises in oil prices, and additional oil drilling could bring additional associated natural gas production.

Exports to Mexico Continue to Grow. Pipeline exports of natural gas to Mexico have increased substantially in 2011, likely a result of the combination of supply issues affecting Mexico and record-high production in the United States. In April, U.S. pipeline exports to Mexico hit 42.8 Bcf, or 1.43 Bcf per day, the highest recorded level for EIA data going back to 1973. Pipeline exports to Mexico for the first 4 months of 2011 are 77 percent greater than they were for the same period of 2010. According to recent trade press and analyst reports, demand for natural gas for power generation has driven growth in gas demand in Mexico. Petróleos Mexicanos (PEMEX), Mexico’s state-owned energy company, has reported steep declines in non-associated natural gas production (which makes up about 40 percent of total gas production) for the first few months of 2011. Bentek Energy, which reports data based on pipeline flows, has reported continued strength to date in exports to Mexico.

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.