Natural Gas

• Natural gas prices fell across the board this week, likely in response to cooling temperatures as well as weak economic news. The Henry Hub spot price fell 17 cents from $4.26 per million Btu (MMBtu) last Wednesday, August 3, to $4.09 per MMBtu yesterday, August 10.
• At the New York Mercantile Exchange, the price of the near-month contract (September 2011) fell by $0.087 per MMBtu, from $4.090 last Wednesday to $4.003 yesterday.
  
• Working natural gas in storage was 2,783 Bcf as of Friday, August 5, according to EIA’s Weekly Natural Gas Storage Report (WNGSR).
  
• The natural gas rotary rig count, as reported by Baker Hughes Incorporated, increased by 6 to 883 as of Friday, August 5.

Spot prices fell this report week at most trading locations across the country, with the largest drops occurring on August 5. The Henry Hub spot price averaged $4 per MMBtu on Friday, August 5, its lowest level since March 21, 2011. In addition to cooler weather, a bearish storage report on Thursday, August 4, may also have put downward pressure on natural gas prices. Northeast prices fell somewhat during the week (generally between 10 and 25 cents), having backed off from extreme heat in previous weeks that led to double digit price spikes. At Transcontinental Pipeline’s Zone 6 pricing point for delivery into New York City, prices dropped during the report week from $4.62 per MMBtu last Wednesday to $4.41 yesterday.

The decline in temperatures this week led to decreases in consumption of natural gas for power generation. Power burn fell almost 4 percent week over week, according to data from Bentek Energy Services, LLC. Supply also fell slightly during the week, as robust production was offset by declines in Canadian imports. Dry production increased 0.6 percent from the previous week, while Canadian imports fell 8.1 percent. Though increasing about 1 percent from the previous week, LNG imports averaged only about 450 million cubic feet (MMcf) per day this week. Increases in domestic supply have reduced the need for imports, while higher prices globally have diverted LNG cargoes away from the United States.

At the New York Mercantile Exchange, the price of the near-month contract (September 2011) fell by $0.087 per MMBtu to settle at $4.003 per MMBtu yesterday. Wednesday’s settlement price was a slight rebound from earlier in the report week; the previous four trading days the price was below $4 per MMBtu. The price of the 12-month strip (the average of the 12 contracts between September 2011 and August 2012) fell less than 1 percent on the week, from $4.409 per MMBtu last Wednesday to $4.371 per MMBtu yesterday.

Working natural gas in storage was 2,783 Bcf as of Friday, August 5, according to EIA’s WNGSR (see Storage Figure) . This represents an implied net injection of 25 Bcf from the previous week. This week’s build is 12 Bcf below the five-year average of 37 Bcf; this marks the fifth consecutive week of below-average builds. During the comparable week last year, inventories increased 36 Bcf. The relatively low inventory build this week was likely due to increased demand for natural gas for power generation during an exceptionally hot week.

The Producing Region registered a net withdrawal for the fourth consecutive week. The Producing Region’s five-year average change for this week is a withdrawal of 5 Bcf; this week’s 21 Bcf draw was far above the average. Areas in the Producing Region, specifically Texas, experienced record high temperatures in July, and power burn was above normal in July and into the beginning of August.

Temperatures during the week ending Thursday, August 4, averaged 79.3 degrees, about 4 degrees warmer than normal. The hottest area of the country during the week was the West South Central, which includes Texas, Louisiana, Arkansas, and Oklahoma. Temperatures averaged 88.9 degrees, 5.9 degrees greater than the 30 year normal(see Temperature Maps and Data). Temperatures were above average in all Census divisions, and above last year’s temperatures in all but the East South Central.

NOAA Declares Last Month Was Officially Hot. With a nationwide average temperature of 77 degrees, last month was the fourth hottest July on record, the National Atmospheric and Oceanic Administration (NOAA) said on August 8. The long-term (1901-2000) average temperature for July is 74.3. Oklahoma and Texas, according to NOAA, had their hottest months on record, with temperatures averaging 88.9 and 87.1 degrees, respectively. According to NOAA, 41 of the lower 48 States experienced warmer than normal temperatures; States spared from the heat were all west of the Rockies. The extreme heat led to greater than normal consumption of natural gas for electric power generation. In fact, consumption of natural gas for power generation averaged 6.03 Bcf per day in Texas, the second highest monthly level of power burn in the years for which Bentek has data (2005-2011). Power burn in the lower 48 States averaged 28.57 Bcf per day, also close to record levels and well above the five-year (2006-2010) July average of 25.99 Bcf per day, according to Bentek data. The heat in July also led the Short-Term Energy Outlook to increase its forecast for consumption of natural gas for electric power generation in 2011.

EIA Projects Strong Supply Growth in 2011. EIA released its Short-Term Energy Outlook this week, which projects marketed production of 65.5 Bcf per day in 2011, a 5.9 percent increase over 2010. Production continues to grow in 2012, but at a slower pace, average 66.1Bcf per day. Growth occurs mainly in onshore areas, offsetting projected declines in the Gulf of Mexico. The growth in production reduces the need for imports; the STEO projects pipeline imports will fall 4.3 percent to 8.7 Bcf per day during 2011 and by another 3.7 percent to 8.4 Bcf per day in 2012. LNG imports are projected to decline to just 1.0 Bcf per day in 2011 and 2012, as higher global prices attract LNG away from the United States. Pipeline exports, on the other hand, are expected to average 4.3 Bcf per day in 2011 and 2012, compared with 3.1 Bcf per day in 2010.

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.