Natural Gas Weekly Update ,July 2, 2009

Overview (For the Week Ending Wednesday, July 2, 2009)

• At the New York Mercantile Exchange (NYMEX), the futures contract for August delivery at the Henry Hub settled yesterday, July 1, at $3.795 per MMBtu, decreasing by 11 cents or about 3 percent during the report week.

Prices

Working gas in storage increased to 2,721 Bcf as of Friday, June 26, according to EIA's Weekly Natural Gas Storage Report (see Storage Figure ). The implied net injection of 70 Bcf was 19 percent below last year's net injection of 86 Bcf and 18 percent below the 5-year average (2004-2008) injection of 85 Bcf for the same report week. Working gas inventories are 615 Bcf higher than year-ago levels and 467 Bcf above the 5-year average level. Working gas in storage exceeds historical levels by significant margins in each of the three regions, with the Producing region contributing the majority of the surplus, exceeding the 5-year average by 252 Bcf and last year's levels by 301 Bcf.

This week marks the first time in 16 weeks, dating back to the week ending March 13, the weekly net change has not exceeded the 5-year average net change. Working gas in storage is at record levels for this time of year. Since the official beginning of the injection season on March 31, working gas stocks have increased by 1,065 Bcf or 21 percent more than the 5-year average of 878 Bcf over the same period.

This week marks the first time that working gas stocks exceeded the 2,700-Bcf threshold in June since the weekly series began in 1994. If the net injections into storage match the 5-year average (2004-2008) over the remainder of the refill season, working gas stocks would exceed 3,700 Bcf. This level of working gas in storage would exceed the previous all-time record in the history of the weekly series of 3,565 reported at the end of October 2007.

Relatively mild temperatures occurred in each of the Census Divisions in the Lower 48 States during the week ended June 25, 2009. Based on the National Weather Service's degree-day data, temperatures in the Lower 48 States during the week were, on average, almost 3 degrees warmer than normal and 3 degrees warmer than last year's levels (see Temperature Maps and Data ). Temperatures were warmest in the South Atlantic, East South Central, and West South Central Census Divisions, where average temperatures were between 80 and 85 degrees. In contrast to the rest of the lower 48 States, temperatures in the New England, Middle Atlantic, Mountain, and Pacific Census Divisions were cooler than normal.

Storage

Working gas in storage increased to 2,721 Bcf as of Friday, June 26, according to EIA's Weekly Natural Gas Storage Report (see Storage Figure ). The implied net injection of 70 Bcf was 19 percent below last year's net injection of 86 Bcf and 18 percent below the 5-year average (2004-2008) injection of 85 Bcf for the same report week. Working gas inventories are 615 Bcf higher than year-ago levels and 467 Bcf above the 5-year average level. Working gas in storage exceeds historical levels by significant margins in each of the three regions, with the Producing region contributing the majority of the surplus, exceeding the 5-year average by 252 Bcf and last year's levels by 301 Bcf.

This week marks the first time in 16 weeks, dating back to the week ending March 13, the weekly net change has not exceeded the 5-year average net change. Working gas in storage is at record levels for this time of year. Since the official beginning of the injection season on March 31, working gas stocks have increased by 1,065 Bcf or 21 percent more than the 5-year average of 878 Bcf over the same period.

This week marks the first time that working gas stocks exceeded the 2,700-Bcf threshold in June since the weekly series began in 1994. If the net injections into storage match the 5-year average (2004-2008) over the remainder of the refill season, working gas stocks would exceed 3,700 Bcf. This level of working gas in storage would exceed the previous all-time record in the history of the weekly series of 3,565 reported at the end of October 2007.

Relatively mild temperatures occurred in each of the Census Divisions in the Lower 48 States during the week ended June 25, 2009. Based on the National Weather Service's degree-day data, temperatures in the Lower 48 States during the week were, on average, almost 3 degrees warmer than normal and 3 degrees warmer than last year's levels (see Temperature Maps and Data ). Temperatures were warmest in the South Atlantic, East South Central, and West South Central Census Divisions, where average temperatures were between 80 and 85 degrees. In contrast to the rest of the lower 48 States, temperatures in the New England, Middle Atlantic, Mountain, and Pacific Census Divisions were cooler than normal.

Other Market Trends

EIA Releases Natural Gas Monthly with Data through April. The Energy Information Administration on June 29 released the Natural Gas Monthly, which includes monthly data through April 2009. Overall, U.S. natural gas consumption fell 19 percent from March to April, which is consistent with previous years, as a result of the end of the heating season and arrival of warmer weather. According to the new data, industrial natural gas consumption for April was 487 billion cubic feet, which represents a 16 percent decline from January 2009, and an 11 percent decline from the same month in 2008. Overall industrial natural gas consumption in the United States fell 8 percent from March to April, while prices paid by industrial customers fell 12 percent, from $5.70 per thousand cubic feet (mcf) to $5.02 per mcf. Patterns of industrial consumption varied across States, with New Mexico industrial gas use increasing 36 percent from March to April, and Massachusetts decreasing 22 percent. Industrial consumption increased in many Southern States. On the other hand, residential consumption has remained relatively flat year over year, showing an increase of less than 1 percent espite much lower natural gas prices in April 2009 than 2008.

Natural Gas Transportation Update

• The first phase of the eastern portion of the Rockies Express Pipeline (REX) has started operations from Audrain County, Missouri, through Warren County, Ohio. The extension of the pipeline to the western part of Ohio provides access to the Lebanon Hub, where interconnections are available with Columbia Gas Transmission Company, Texas Eastern Transmission Corporation, and Dominion Transmission Company. In Indiana and Illinois, REX shippers are able to access Natural Gas Pipeline Company of America and Trunkline Gas Company. Full operation of the entire REX-East pipeline to Clarington, Ohio, is projected to begin before November 1, 2009. During this initial service of the eastern portion of the pipeline, REX-East has a capacity of 1.6 billion cubic feet (Bcf) per day.
• Noting that its transmission system is operating at an extremely high load factor, Colorado Interstate Gas Company on Monday, June 29, implemented an operational flow order (OFO) requiring shippers to balance receipts and deliveries. The pipeline company also has limited storage and banking flexibility since facilities on the northern part of the system are near operational limits. CIG said no storage injections will be accepted from customers who have contracted for interruptible service. The pipeline also directed shippers with interruptible service to withdraw natural gas currently held in storage by the end of July.
• Questar Pipeline Company on Monday, June 29, said it had completed repairs on Unit 2 at Oak Spring Compressor Station in Carbon County, Utah, and said it had restored capacity of its pipeline segment in the region to 500,000 decatherms (Dth) per day. Capacity at the station was reduced to 330,000 Dth per day on Tuesday, June 23, for unscheduled maintenance.
• Gulf Crossing Pipeline Company LLC on Tuesday, June 30, said it had completed remediation of the anomalies on its pipeline system and would begin operating at a reduced level immediately. Anticipated peak-day delivery capacity for Gulf Crossing in July is estimated at approximately 1.3 Bcf per day. Flows on Gulf Crossing, which begins near Sherman, Texas, and extends to Perryville, Louisiana, began in February 2009. They were temporarily suspended while the pipeline was inspected by the U.S. Pipeline and Hazardous Materials Safety Administration in June. Gulf Crossing also announced that the Federal Energy Regulatory Commission has granted it authority to expand its Mira Compressor Station in Caddo Parish, Louisiana, to increase peak-day delivery capacity to 1.7 Bcf per day in 2010.