Natural Gas

Overview: Thursday, September 6, 2007 (next release 2:00 p.m. on September 13, 2007)

Since Wednesday, August 29, natural gas spot prices increased at most market locations in the Lower 48 States, with a few exceptions in Florida and the Rocky Mountain region. For the week (Wednesday-Wednesday), prices at the Henry Hub rose 17 cents, or about 3 percent, to $5.81 per MMBtu. Yesterday (September 5), the price of the NYMEX futures contract for October delivery at the Henry Hub settled at $5.805 per MMBtu, increasing roughly 22 cents or about 4 percent since last Wednesday (August 29). Natural gas in storage was 3,005 Bcf as of August 30, leaving natural gas inventories at 10.4 percent above the 5-year average. The spot price for West Texas Intermediate (WTI) crude oil increased in all but one trading session during the week, rising $2.22 per barrel, or 3 percent, on the week to $75.74 per barrel or $13.06 per MMBtu.

Prices:

Despite seasonally moderate temperatures in all areas, with the exception of California and the desert Southwest, and favorable supply, natural gas spot prices rose at virtually all market locations this week. The holiday-shortened week and the resulting decrease in industrial demand did not provide significant downward pressure on prices. While spot prices at most locations decreased in the first 3 trading days of the report week, yesterday's increases in prices, most of which ranged between 20 and 60 cents per MMBtu, were sufficient to offset beginning-of-the-week declines, resulting in net gains since last Wednesday. The weekly price decreases were limited to Florida and a few pricing points in the Rocky Mountains, with the decreases ranging between 19 cents and $1.08 per MMBtu. Yesterday, the Rocky Mountain regional price averaged $2.72 per MMBtu, with a minimum of $0.66 (Northwest South of Green River) and a maximum of $5.32 (Stanfield). In all, five trading locations recorded prices below $1 per MMBtu in the Rockies. Elsewhere in the Lower 48, prices for the week increased between 2 and 34 cents per MMBtu. The Henry Hub spot price rose 17 cents to $5.81 per MMBtu, matching the average price increase for the other trading locations in Louisiana. In the producing areas along the Gulf coast outside Louisiana, prices increased by an average of 24 cents per MMBtu. As of yesterday, only 12 trading locations registered prices higher than $6 per MMBtu, however, yesterday's prices are on average about 7 percent above spot prices last year at this time, not including the Rocky Mountain region prices. Regardless of this week's price increases, market behavior has differed in reaction to falling prices in recent weeks. For example, while Chesapeake Energy Corp. announced curtailment of about 125 million cubic feet (MMcf) per day of production from its fields in the Anadarko Basin and across Texas because it considers current natural gas prices inadequate, Williams Company and Anadarko Petroleum Company have announced that they view the current natural gas price levels as temporary and thus will not reduce their production.  

 At the NYMEX, the October 2007 futures contract for delivery at the Henry Hub increased 22.4 cents or 4 percent on the week to $5.805 per MMBtu during its first week of trading as the near-month contract. Similarly, the November 2007 contract increased on the week, settling yesterday at $6.690 per MMBtu, which was 13 cents or about 2 percent higher than last Wednesday. Remaining futures contracts for delivery during the upcoming heating season increased only slightly on the week, rising by an average of 3 cents since last Wednesday. The heating season futures contract strip traded yesterday at $7.564 per MMBtu, 5 cents higher than last week, but $2.455 per MMBtu lower than the 2006-2007 heating season strip last year at this time.

 Recent Natural Gas Market Data

 Storage:

Working gas in storage totaled 3,005 Bcf as of Friday, August 31, according to EIA's Weekly Natural Gas Storage Report, exceeding the 3,000-Bcf mark for the first time this injection season, more than 1 week ahead of last year, when storage inventories reached 3,084 Bcf for the week ended September 8, 2006. Working gas inventories are roughly 10 percent above the 5-year average and about 1 percent above the level last year for the report week (see Storage Figure).  The implied net injection during the report week was 36 Bcf, which is 46 percent below the 5-year average net addition of 67 Bcf for the week and 47 percent lower than the injection of 68 Bcf reported for the same week last year. This week marks the fourth consecutive week that at least one of the storage regions recorded a net weekly decrease. At the same time, storage additions continued at a below-average rate, with the last 5 report weeks recording net injections that were between 7 and 63 percent lower than the 5-year average. During the week ended August 30, the National Weather Service reported temperatures that were 42 percent warmer than normal, as measured by the cooling degree days (CDDs) (see Temperature Maps), and about 23 percent above last year's level for the same report week.  

Other Market Trends:

EIA Reports Financial Results for Independent Energy Companies: The Energy Information Administration (EIA) released the Financial News for Independent Energy Companies, Second Quarter 2007, which includes financial information for 38 independent energy companies. These companies are typically smaller than the major companies and do not have integrated production and refining operations.According to EIA, total income for the 38 companies grew by 39 percent in the second quarter of 2007 compared with earnings in the second quarter of 2006, mainly because of the performance of oil field service companies and the refiner/marketer companies. The higher income for oil field companies, which increased by 36 percent over the same quarter of the previous year, was driven by a higher worldwide rig count, which reflects increased demand for equipment and services that these companies provide. In contrast, net income of the independent oil and gas producers included in this report declined 10 percent between the second quarters of 2006 and 2007, despite a 19-percent increase in revenues. A 2-percent decrease in oil prices and higher expenses for some companies for exploration, abandonments, and repairs related to damage from Hurricane Rita outweighed the effects of the 10-percent increase in natural gas prices. Earnings of the independent refiners included in the report more than doubled from $314 million in the second quarter of 2006 to $682 million in the second quarter of 2007. The significant increase was a result of higher refining margins, which is the difference between the composite wholesale refined petroleum product price and the composite refiner acquisition of crude oil, of more than 27 percent over the same quarter last year.  

Updated 2007 Atlantic Hurricane Season Projection: Forecasters at Colorado State University's Tropical Meteorology Project released a report on Tuesday, September 4, 2007, which reduces the 2007 seasonal forecast of Atlantic basin hurricane activity. The report by Philip Klotzbach and William Gray titled Forecast of Atlantic Hurricane Activity for September and October 2007 and Seasonal Update Through August projects that the remainder of the current hurricane season will experience 10 named storms, 6 hurricanes, and 3 major hurricanes of Category 3 or higher. As of September 4, 5 named storms, 1 hurricane, and 1 intense hurricane had developed, and 40 percent of the Net Tropical Cyclone (NTC) activity of the average hurricane season had occurred. In an average year, 33 percent of the NTC activity occurs before the end of August. June and July 2007 had approximately average activity, with two named storms (Barry and Chantal), while August had slightly below-average activity. The forecast for September calls for 5 named storms, 4 hurricanes, 2 intense hurricanes and NTC activity of 80 percent, which is above the September average value of 48. The October and November forecast also calls for 5 named storms, 2 hurricanes, and 1 intense hurricane, and NTC activity of 42 which is significantly above the October-November average value of 22. The long-term (1950-2000) average is 9.6 named storms, 5.9 hurricanes, and 2.3 intense hurricanes per year. The cumulative numbers for the entire 2007 season reflect a slight reduction in storm activity compared with forecasts released in April that predicted 17 named storms, 9 hurricanes, and 5 intense hurricanes, and an update in August that predicted 15 named storms, 8 hurricanes, and 4 intense hurricanes.  

• Florida Gas Transmission Company (FGT) issued an Overage Alert Day for September 5 with a 25 percent tolerance level as a result of high temperatures in its service territory. FGT announced that it would not interrupt previously scheduled market area interruptible transportation service below the elapsed-prorated-scheduled quantity. Furthermore, on September 5, FGT announced maintenance work beginning on September 6, which is expected to last until September 8. The unscheduled maintenance is on the larger of the two units located in Mississippi at Tennessee Carnes Interconnect, upstream of FGT Compressor Station. Because of the maintenance, FGT announced that during the outage the company will schedule up to about 950,000 MMBtu/day, whereas, normally, the company would schedule up to 1,150,000 MMBtu/day.
• Colorado Interstate Gas Company announced on August 30 that it is undertaking maintenance at the Beaver Compressor station located south of Springfield, Colorado. One unit at the station will be out of service from September 6 to 30.Capacity will be reduced to 250 MMcf/d from 262 MMcf/d.
• El Paso Natural Gas Company announced on September 1 that there was potential for high linepack conditions on its system. The Washington Ranch storage facility located in Eddy County, New Mexico, is currently on maximum capacity for injection. Furthermore, the company announced a strained operating condition warning, which was cancelled on September 3.
• Transco Gas Pipeline Corporation released a notice on September 4 regarding firm backhaul transportation service for winter 2007-2008. During September 4 to 11, Transco will be considering requests for firm backhaul transportation service for up to 200,000 decatherms per day (Dth/d) with a primary path from the Northeast, Station 210 in Zone 6 to Northeastern Louisiana, station 65 in zone 3. The service period will be from October 1, 2007, through April 30, 2008.

Short-Term Energy Outlook