Overview:  Thursday, March 29, 2007 (next release 2:00 p.m. on April 5, 2007)

Natural gas spot prices increased at almost all market locations in the Lower 48 States by as much as 82 cents per MMBtu since Wednesday, March 21, 2007.  For the week (Wednesday – Wednesday, March 21 to 28), the spot price at the Henry Hub increased by 65 cents, or about 10 percent, to $7.47 per MMBtu.  The price of the NYMEX futures contract for April delivery settled at $7.558 per MMBtu yesterday (March 28), which is 40 cents, or about 6 percent, more than last Wednesday.  As of Friday, March 23, 2007, natural gas in storage was 1,511 Bcf or 21.5 percent above the 5-year average.  The spot price for West Texas Intermediate (WTI) crude oil was $64.11 per barrel or $11.05 per MMBtu yesterday.  This price is $7.13 per barrel, or about 13 percent, more than the price last week and is the highest WTI spot price since September 11, 2006. 

 

 

Prices:

Although the weather was warmer than normal for the country as a whole, cold temperatures in the Northeast and Midwest along with a significant rise in the crude oil price placed upward pressure on natural gas prices during the report week (Wednesday to Wednesday, March 21 to 28).  As of Tuesday, spot price movements were mixed, but forecasts for cooler weather led to widespread increases in yesterday’s trading (March 28) leaving spot prices at almost all market locations higher than levels of the previous Wednesday.  Locations in Louisiana exhibited some of the largest price gains with an average regional price increase of 67 cents per MMBtu for the week.  The Henry Hub spot price increased 65 cents per MMBtu, or about 10 percent, to finish the week at $7.47 per MMBtu yesterday.  The average price in Louisiana was $7.43 per MMBtu yesterday.  The Northeast, which still has significant heating needs because of cold temperatures, also experienced significant prices increases at all market locations, ranging between 60 and 82 cents per MMBtu.  The average price in the Northeast was $7.96 per MMBtu yesterday, which is about 9 percent more than the price last Wednesday.  Price increases were more modest at most locations in the Midcontinent and the West including the Rockies, California, Arizona, and Nevada, where only a few prices were more than 50 cents above levels of the previous Wednesday.         

 

 

At the NYMEX, the price of the natural gas futures contract for April 2007 delivery at the Henry Hub increased 40 cents or about 6 percent to $7.558 per MMBtu since last Wednesday, March 21.  In its last day of trading before expiring, the April 2007 contract settled at $7.558 per MMBtu yesterday (March 28), which is the highest price for the contract during its term as the near-month contract.  For comparison, this price is slightly higher than the expiration prices of corresponding contracts in previous years. The April 2006 contract expired at $7.233 per MMBtu, and the April 2005 contract expired at $7.323 per MMBtu.  The prices for all contracts over the next year increased with gains ranging between 35 cents (February 2008 and March 2008) and 41 cents (May 2007, June 2007, and July 2007).  The 12-month strip, which is the average of the monthly futures prices for the coming year, increased about 38 cents this week to settle at $8.571 per MMBtu yesterday.  This includes an average contract price of $7.912 per MMBtu for the injection season months (April 2007 to October 2007) and an average contract price of $9.493 per MMBtu for the heating season months (November 2007 to March 2008).  All of the contract prices hold a significant premium to the Henry Hub spot price of $7.47 per MMBtu, which provides economic incentive to avoid using natural gas from storage.   

 

Recent Natural Gas Market Data

 

Estimated Average Wellhead Prices
	Sep-06	Oct-06	Nov-06	Dec-06	Jan-07	Feb-07
Price ($ per Mcf)	5.51	5.03	6.43	6.65	5.92	6.66
Price ($ per MMBtu)	5.37	4.90	6.26	6.48	5.76	6.48
Note: Prices were converted from $ per Mcf to $ per MMBtu using an average heat content of 1,027 Btu per cubic foot as published in Table A4 of the Annual Energy Review 2002.
Source:  Energy Information Administration, Office of Oil and Gas.

 

Storage:

Working gas in storage was 1,511 Bcf as of Friday, March 23, which is 21.5 percent above the 5-year average, according to EIA’s Weekly Natural Gas Storage Report (see Storage Figure).  The implied net withdrawal of 22 Bcf is less than half of the 5-year average withdrawal of 50 Bcf, and less than a quarter of last year’s net withdrawal of 92 Bcf.  With only about 1 week remaining in the heating season, stock levels currently exceed the 5-year average by 267 Bcf, which is the largest overhang of this type since the week ending February 9, 2007.  However, current stock levels are 209 Bcf less than the last year’s level.  Regional weather patterns largely influenced storage activity during the report week.  According to the National Weather Service’s heating degree-days for the week ending March 22, 2007, temperatures were between 4 and 22 percent colder than normal in four eastern Census Divisions: New England, Middle Atlantic, East North Central and South Atlantic (see Temperature Maps).  These cold temperatures are reflected in a 41 Bcf implied net withdrawal in the East Storage Region, which is equal to the 5-year average in this region.  Temperatures were warmer than normal for the rest of the country, which corresponds to net injections of 6 Bcf and 13 Bcf in the West and Producing Regions, respectively.  The 5-year average net change for this week is a withdrawal of 4 Bcf in each of these two regions.  If the net withdrawal in the United States next week matches the 5-year average of 12 Bcf, working gas in storage will be around 1,500 Bcf at the end of the heating season, which would be about 22 percent above the 5-year average. 

 

 

 

Other Market Trends:

MMS Announces Results of RIK Sale: The Department of the Interior’s Minerals Management Service (MMS) announced on March 27, 2007, that the Federal Government should receive more than $1 billion in revenue following a successful royalty-in-kind (RIK) sale of natural gas. The sale will deliver about 137 Bcf of RIK natural gas or about 398,300 MMBtu per day, enough to supply the average natural gas needs of about 1.7 million homes for 1 year. The revenue was valued at more than $1 billion at the current natural gas price of $7.50 per MMBtu; however, actual revenues may vary based on natural gas prices over the life of the contracts. The natural gas will be delivered beginning April 1, 2007, over 7- or 12-month terms to 13 offshore pipeline systems originating in the Gulf of Mexico, and is slated for end use in the continental United States. A total of 20 companies submitted 152 bids for the 13 sales packages offered.  Ten companies were awarded contracts including Williams Power Company, BG Group, and Constellation Energy Commodities Group Inc.   

 

BLM Releases Results of Lease Sale: The Bureau of Land Management (BLM) reported on Wednesday, March 28, that the recent auction of oil and gas leases in the national forest land in five States resulted in $12 million in bonus bids. In the March 15 sale, 236 parcels were offered for a term of 10 years and beyond if there is production in paying quantities.  The highest per-acre bid was made by Manassas LLC of Jackson, Mississippi, which offered $1,930 per acre. The Federal Government will receive a 12.5 percent royalty of the value of production, while each State (Alabama, Arkansas, Louisiana, Michigan, and Mississippi) will receive at least 25 percent of the bonus bid, along with the revenue from each lease issued in the State.

 

Natural Gas Transportation Update:

·     Questar Pipeline Company began its spring reservoir test at the Clay Basin Storage Facility on March 27, and expects the test to last until April 19.  Because of the reservoir conditioning from March 27 to April 2, the field at the Clay Basin Storage Facility will be available for withdrawals only.  After a withdrawal test on April 3, there will be a reservoir shut-in from April 4 to April 19, and no injection or withdrawal nominations will be accepted during that time. Questar reminded customers to closely align nomination and actual volumes while the reservoir is shut in because pipeline balancing capabilities will be significantly limited.

·     Dominion Transmission Company reported that the Leidy-Tamarack storage facility will be out of service between March 26 and 31 because of storage performance testing.  Gas receipts are limited to primary service only.

·     Dominion also reported that the South Oxford station was out of service as of Tuesday, March 27, because of unexpected maintenance. Producers in bubble 4413 were required to reduce their deliveries by 50 percent until further notice as a result of high line pressures.

·     Effective March 24, CenterPoint Energy Gas Transmission initiated an unscheduled maintenance at its Delhi Compressor Station.  This maintenance will affect delivery capacity at Columbia Gulf/Perryville (South) stations.  Capacity will be limited to 250,000 decatherms per day until further notice.  CenterPoint anticipates that there will be no capacity available for interruptible transportation service until further notice.  Firm delivery nomination will be reduced and scheduled in accordance with the tariff.  Shippers will be allowed to transport to non-Columbia Gulf/Perryville (South) secondary points in the Perryville Hub.

·     Southern Natural Gas Company notified its customers that it will declare force majeure for about 2 weeks on the Mississippi Canyon 397 line as a result of maintenance work on the offshore line upstream of the Toca compressor station. The pipeline expects the maintenance to begin about April 1. Southern will not be able to accept nominations at the Mississippi Canyon 397 receipt point during the 2-week period.

 

 

 

 Short-Term Energy Outlook