Overview (For the Week Ending Wednesday, May 19, 2010)

  • Since last Wednesday, May 12, natural gas spot prices generally rose at market locations across the lower 48 States, with only a few exceptions. The Henry Hub natural gas spot price increased about 2 percent since last Wednesday, from $4.18 per million Btu (MMBtu) to $4.28 per MMBtu.
  • At the New York Mercantile Exchange (NYMEX), the price of the June 2010 futures contract fell about 3 percent, from $4.284 per MMBtu to $4.158 per MMBtu.
  • The West Texas Intermediate (WTI) crude oil spot price dropped about 8 percent, from $75.65 per barrel ($13.05 per MMBtu) to $69.91 per barrel ($12.05 per MMBtu). On Tuesday, the WTI price settled at $69.38 per barrel ($11.96 per MMBtu), its lowest price since September 2009.
  • Working natural gas in storage increased to 2,165 billion cubic feet (Bcf) as of Friday, May 14, following an implied net injection of 76 Bcf, according to EIA's Weekly Natural Gas Storage Report.
  • The number of natural gas rigs drilling totaled 951 for the week ended May 14, according to Baker Hughes Incorporated. The rig count decreased by two rigs compared with the previous week ended May 7 (see Other Market Trends).

More Summary Data

Prices

Continuing increases from the previous week, prices rose at all but five trading points. The Henry Hub spot price increased about 10 cents from $4.18 per MMBtu to $4.28 per MMBtu. Price gains generally ranged between 2 and 18 cents on the week. At most market locations, prices reached their high for the report week on Tuesday, when the Henry Hub price jumped to $4.42 per MMBtu before falling 14 cents the next day. Despite price increases, weather was generally mild across the country. Mean temperatures were in the 50s, 60s, and 70s in the majority of the lower 48 States, with some areas of colder weather in the 40s in Wyoming and Colorado. Although natural gas demand fell an estimated 7 percent from the previous week, current levels are an estimated 3 percent higher compared with 1 year ago, according to BENTEK Energy Services, LLC. Residential and commercial consumption of natural gas fell an estimated 34 percent from the previous week, and 12 percent from year-ago levels.

Lower liquefied natural gas (LNG) sendout may have been a contributing factor to the increase in prices over the last 2 weeks. Although LNG sendout rose 19 percent from last week, current volumes are 28 percent below year-ago levels, according to BENTEK. Last week, LNG sendout was also lower compared with the previous year.

Three trading locations in the Rockies and Midcontinent regions registered slight price declines on the week. At the Northwest Natural Ventura trading point in Hancock County, Iowa, prices dropped from $4.24 per MMBtu to $4.20 per MMBtu. This 4-cent decline was the largest weekly decrease in the lower 48 States. Additionally, at the Cheyenne Hub and the Northwest Sumas trading points in the Rockies, prices fell 1 cent and 3 cents, respectively. Rockies prices were the lowest in the lower 48 States, with all trading locations in the region ending the week at less than $4 per MMBtu. One other trading point, the Northwest Natural Demarcation in the Midcontinent, posted no net change, beginning and closing the report week at $4.23 per MMBtu.

At the NYMEX, the June 2010 natural gas contract decreased slightly on the week, with a substantial drop in the last 2 days of the report week. The near-month contract ended trading on May 19 at $4.158 per MMBtu, a nearly 13-cent decrease compared with its closing price of $4.284 per MMBtu the previous Wednesday. The price of the contract fell 24 cents in the last 2 days of trading during the report week, from $4.398 per MMBtu on Monday. The 12-month strip (the average of all contracts from June 2010-May 2011) fell about 5 percent, from $5.084 per MMBtu last Wednesday to $4.847 yesterday. All 12 of the contracts in the strip declined on the week, with the largest drops occurring for December 2010 through May 2011 contracts. The average of the winter contracts (November 2010-March 2011) fell 31 cents, from $5.554 last Wednesday to $5.239 yesterday.

More Price Data

Storage

Working natural gas in storage increased to 2,165 Bcf as of Friday, May 14, according to EIA's Weekly Natural Gas Storage Report (see Storage Figure). The implied net injection was 76 Bcf, compared with last year's net injection of 100 Bcf and the 5-year (2005-2009) average injection of 93 Bcf for the report week. Working gas inventories are currently 73 Bcf above year-ago levels and 308 Bcf above the 5-year average. Working gas in storage has exceeded the 5-year average for this time of year in each of the three storage regions for the last 9 weeks. However, the most recent injection ended a 9-week streak of above-average net injections into storage that began with the report for the week ended March 12, 2010. Nevertheless, working gas stocks remain above the record levels established in 2009 and are currently at historical highs for this time of year.

Cooler-than-normal temperatures in the East region likely contributed to the smaller-than-normal net injection into storage. The below-normal net injection into storage on a national basis during the storage report week resulted from the slower-than-normal pace of injections in the East region. While net injections into storage for the week ended May 14 exceeded the 5-year average in the West and Producing regions by 2 and 5 Bcf, respectively, injections in the East region were 25 Bcf below the 5-year average. Nevertheless, working gas stocks in the East region are near record highs for this time of year at 992 Bcf as of May 14, falling about 7 percent below the record levels established for the region in 2006. Significantly cooler-than-normal temperatures in the East storage region, as well as reduced pipeline imports of natural gas from Canada, likely contributed to below-average injections in the region.

Temperatures were generally cooler than normal in most Census Divisions in the United States during the week ended May 13, with slightly warmer-than-normal temperatures in the southern parts of the United States. Based on the National Weather Service's degree-day data, temperatures in the United States during the week ended May 13 were, on average, about 3.3 degrees cooler than normal and 6.0 degrees cooler than last year (see Temperature Maps and Data). Temperatures in the New England, Middle Atlantic, and East North Central Census Divisions, which constitute the majority of the East storage region, ranged between 5 and 6 degrees below normal for this time of year. In the West North Central, Mountain, and Pacific Census Divisions, average temperatures ranged between 58 and 60 degrees, about 3 to 8 degrees below normal. In contrast to the rest of the country, temperatures in the West South Central, South Atlantic, and East South Central Census Divisions were between 0.3 and 1.6 degrees warmer than normal, ranging between 66 and 71 degrees.

More Storage Data

Other Market Trends

Enrollment in Natural Gas Residential Choice Programs Reached All-Time High in 2009. On May 17, 2010, EIA released information on the status of natural gas residential choice programs in each State as of December 2009. Enrollment rates in customer choice programs have increased for 4 consecutive years, reaching an all-time high of 5.1 million households in 2009. About 15 percent of the roughly 35 million residential customers with access to such programs participated in them in 2009. Highlights of the 2009 update include:

  • Although no additional States offered residential choice programs in 2009, enrollment in such programs increased by 445,000 or 9 percent from 2008. Participation increased or remained constant in all but one of the States with active programs.
  • Ohio had the largest year-over-year enrollment increase of 279,000 customers.
  • For the first time, Ohio instead of Georgia had the largest number of choice customers.
  • The number of marketers providing services to residential customers increased 11 percent in 2009 compared with 2008. In all but two States with existing programs, the number of marketers increased or remained constant.

More information regarding the 2009 update to Natural Gas Residential Choice Programs is available here: http://www.eia.doe.gov/oil_gas/natural_gas/restructure/state/us.html.

U.S. Government Reports on Deepwater Horizon Oil Spill Response Efforts. The U.S. Government continues its response to the oil spill following the April 20 explosion aboard the Deepwater Horizon mobile offshore drilling unit. The rig was located about 50 miles southeast of Venice, Louisiana. Some of the latest facts according to a May 19 report of the Administration-wide response include:

  • Secretary of the Interior Ken Salazar signed a Secretarial Order dividing the Minerals Management Service into three separate entities to strengthen oversight of offshore energy production; improve the agency's revenue and royalty collection operations; and help the United States build a clean energy future.
  • A riser insertion tube was lowered into the Gulf water to capture some of the oil and natural gas at the site of the leaking well, and to help prevent the formation of methane hydrates underwater.
  • The tar balls that washed up on an island in the Florida Keys were not linked to the Deepwater Horizon oil spill. The source of the tar balls remains unknown.
  • Secretary of Energy Steven Chu and Secretary of the Interior Ken Salazar traveled to Houston, Texas, last week to meet with DOE and national laboratory staff, industry officials, and others to determine additional methods for stemming the oil spill. National laboratory staff members from Sandia, Los Alamos, and Livermore are taking an active role in working with BP to address the oil spill.
  • Favorable weather conditions have allowed for a controlled burn this week to remove some of the oil from the Gulf of Mexico.
  • The National Oceanic and Atmospheric Administration (NOAA) observed that a small portion of light oil sheen has reached the Loop Current, which is an area of warm water that flows from the Caribbean, past the Yucatan Peninsula, and into the Gulf of Mexico. NOAA noted that any oil that reached the Florida Straits via this current would be highly weathered, and natural evaporation and dispersants would reduce the oil volume significantly.
  • Louisiana Governor Bobby Jindal yesterday announced that heavy oil had reached the State's wetlands. He requested that the Army Corps of Engineers permit a dredging plan to help protect the State's wetlands.

More information about the Administration's ongoing efforts to respond to the oil spill is available here: http://www.deepwaterhorizonresponse.com/go/site/2931/. Additionally, EIA has released a Gulf of Mexico fact sheet, updated May 14, which includes a map of the area and some of the most requested data series regarding oil, natural gas, and liquid fuels.

FERC Highlights Drop in Demand and Technological Advances in Natural Gas Market in 2008. In its State of the Markets report released last month, the Federal Energy Regulatory Commission (FERC) highlighted major trends in the natural gas and electricity markets. The global recession reduced demand, softened prices, and slowed investment. During the year, natural gas prices moved closer to parity with coal prices. As a result, sales of natural gas to power generators increased as more gas-fired power plants moved to baseload service. The shift from coal to natural gas that occurred in 2009 also likely contributed to declines in emissions of sulfur oxides and nitrous oxides, which fell 25 and 30 percent, respectively. Despite the recession, FERC noted that technological innovation still allowed for robust natural gas production. For example, production lead times have decreased, giving producers greater flexibility to drill for gas. According to FERC, in the past, lead times from start of drilling to initial production could be several months. In 2009, the average lead time was 20 days. Additionally, the robust production in 2009 is likely sustainable, as evidenced by an expanding resource base. The Potential Gas Committee raised its estimates of supply at more than 2 quadrillion cubic feet, which could meet more than 90 years of demand at current consumption levels. FERC's report is available here: http://www.ferc.gov/market-oversight/st-mkt-ovr/som-rpt-2009.pdf

Horizontal Natural Gas Rigs Reach 2½ -Year High. The number of horizontal natural gas rigs totaled 605 as of May 14, 2010, according to Baker Hughes Incorporated data. This level is the highest over the last roughly 2½ years for which data are available. Currently, horizontal rigs comprise 64 percent of the natural gas rig count, which totaled 951 as of May 14. Vertical and directional rigs account for 20 percent and 16 percent of this total, respectively. The vertical rig count has fallen in terms of percentage share as well as absolute value during the period for which data are available. Totaling 191 as of Friday, the vertical natural gas rig count has fallen precipitously from its level of 772 on January 4, 2008. This decline in the vertical rig count has contributed to a decrease in the overall level of natural gas rigs of about 500 since the beginning of 2008. However, growth in horizontal natural gas rigs has partially offset this decline. The increase in horizontal rigs is largely attributable to efficiency gains in drilling and production of natural gas in shale formations. Key growth areas include the Appalachian Region (Marcellus Shale), and the Louisiana-Mississippi Salt Basins Region (Haynesville Shale). Since 2008, the natural gas rig count in these basins has grown overall, in contrast to most other basins. As of May 14, rigs have grown 34 percent in the Appalachian Basin, since January of 2008 to 115 as of May 14, while in the Louisiana-Mississippi Salt Basins, rigs have grown 116 percent to 147.

Natural Gas Transportation Update

  • Sabine Pipe Line Company on Wednesday, May 19, reported that it will perform required maintenance its South Booster compressor station at the Henry Hub in Erath, Louisiana. The company is scheduled to perform the maintenance on Friday, May 21, and expects to complete the work within 12 hours. Sabine said it may be required to allocate capacity to match compression capabilities during this time.
  • Mississippi River Transmission Corporation (MRT) this week provided more information concerning unplanned maintenance on its system. The company plans to temporarily shut in its Fountain Hill compressor station in Ashley County, Arkansas for a 24-hour period between May 19 and May 21. During this period, MRT's injection capability at its Unionville storage field in Lincoln Parish, Louisiana, will be unavailable. In addition, MRT may not schedule supply receipts that do not have offsetting deliveries.
  • Gulf South Pipeline Company LP this week announced maintenance plans for parts of its pipeline. The company will be performing maintenance at the Goodrich compressor station in northeast Texas for 3 days beginning on Wednesday. Capacity through Goodrich, which has a capacity of 500,000 MMBtu per day, could be reduced by 50,000 MMBtu per day. Gulf South also began maintenance on a portion of its 10-inch diameter pipeline in Louisiana on Wednesday, May 19. The maintenance is scheduled continue for about 10 days.
  • Northwest Pipeline Company on Tuesday, May 18, said it will reduce available capacity at the Kemmerer compressor station to 550,000 MMBtu per day until May 28. The compressor station, which is located in Wyoming, normally has a capacity of about 640,000 MMBtu per day. The reduced capacity is the result of maintenance relating to pigging runs, a process of sending pipeline inspection gauges or 'pigs' to perform various operations through a pipeline. The pipeline reserves the right to cut supplies to protect its operational integrity.

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.

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