Natural Gas

Overview:

(For the Week Ending Wednesday, January 4, 2012)

• Despite some significant weather-related spikes in the Northeast toward the end of the week, natural gas prices at most trading locations across the country fell over the report week. The spot price at the Henry Hub fell 11 cents, from $3.07 per million British thermal units (MMBtu) last Wednesday, December 28, to $2.96 per MMBtu yesterday, January 4.
• At the New York Mercantile Exchange (NYMEX), the February 2012 futures contract moved into the near-month position and remained relatively steady over the report week, declining by 2.5 cents from $3.121 per MMBtu to $3.096 per MMBtu.
• Inventories of working natural gas in storage fell to 3472 billion cubic feet (Bcf) as of Friday, December 30, according to EIA's Weekly Natural Gas Storage Report (WNGSR).
• The natural gas rotary rig count, as reported on December 29 by Baker Hughes Incorporated, increased by 7 to 809 active units, reversing eight consecutive weeks of decline. Oil-directed rigs, on the other hand, declined by 8 to 1,193. Over the past year (from December 30, 2010), the natural gas rig count has declined by 110, while the oil rig count has increased by 428.

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Prices:

Despite some significant weather-related price spikes in the Northeast over the New Year's weekend, natural gas prices fell over the report week at most market locations. The Henry Hub price dropped below $3 per MMBtu on Friday and remained there through the balance of the report week to end the week at $2.96 per MMBtu, eleven cents below its value last Wednesday. Frigid weather in the East, contrasted with milder temperatures in other parts of the country, led to a mixed market over the week with little major movement in prices at most locations. The Chicago citygate price declined steadily over the week from $3.16 per MMBtu last Wednesday to $3.05 per MMBtu yesterday. Spot prices at Transcontinental Pipeline's Zone 6 trading point for delivery into New York City, which started the week at $5.85 per MMBtu, climbed to $11.83 per MMBtu on Friday, remained above $10 per MMBtu through Tuesday and then dropped to $4.55 per MMBtu yesterday as a warming trend helped abate the freezing temperatures.

Although increasing only slightly over the week, total supply remained 7.6 percent above year-ago levels, signaling the continued strength in domestic production. Imports from Canada increased overall by 2.3 percent from the previous week, with significant increases in volumes delivered to the Northeast (34.4 percent) according to BENTEK Energy, LLC (Bentek). LNG sendout increased by 19.8 percent over the week, with most of the increase coming from Cove Point, likely to satisfy increased weather-related demand in the East.

Total consumption over the report week was up by 2.5 percent according to Bentek, with the highest increases in residential/commercial consumption, up 3.2 percent. Although residential/commercial consumption dropped through Saturday, it picked up significantly on Sunday, and double digit percentage increases were registered on Monday and Tuesday. By Wednesday, demand had begun to drop off, consistent with the weather pattern in the East over the week.

At the NYMEX, the February 2012 contract posted a small decline over the report week, falling from $3.121 per MMBtu last Wednesday to $3.096 per MMBtu yesterday. The contract price fell below $3 per MMBtu over the Holiday weekend, but moved back above the $3 per MMBtu benchmark yesterday. The 12-month strip (the average of the 12 contracts between February 2012 and January 2013) followed a slightly different pattern, declining only slightly during the week and rising overall for the week from $3.348 per MMBtu last Wednesday to $3.400 per MMBtu yesterday.

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Storage

Working natural gas in storage fell to 3,472 Bcf as of Friday, December 30, according to EIA's WNGSR. This represents an implied net withdrawal of 76 Bcf, much smaller than the 5-year average draw of 106 Bcf, as well as last year's draw of 135 Bcf. Stocks are well above average in all three regions. Relatively warm weather through the week contributed to the reduced withdrawal.

Inventories at the end of the year were at their highest levels for that week since EIA began tracking storage levels. Large production increases throughout the year and generally mild weather through the first months of the heating season have contributed to the record level. The Producing Region stands out at 226 Bcf (23.3 percent) above the 5-year average.

Temperatures during the week ending December 29 were 4.9 degrees warmer than the 30-year normal temperature and 6.0 degrees warmer than last year. All regions with the exception of the West South Central were warmer than normal. The Midwest was particularly warm, with the East North Central and West North Central regions averaging 7.4 and 10.7 degrees warmer than normal, respectively. Heating degree-days nationwide were down 15.3 percent from normal.

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See also:

• Natural Gas Analysis Reports
• Short-Term Energy Outlook