Overview (Wednesday, March 5, to Wednesday, March 12)

Released: March 13, 2008

Next release: March 20, 2008

 

·                        Natural gas spot and futures prices generally increased this report week, as cold weather continued but showed signs of easing. During the report week, the Henry Hub spot price increased $0.32 per million Btu (MMBtu) to $9.69.

 

·                        At the New York Mercantile Exchange (NYMEX), prices for futures contracts increased between 2 and 4 percent for the report week. The futures contract for April delivery rose 27 cents per MMBtu on the week to $10.011.

 

·                        As of Friday, March 7, working gas in storage was 1,398 Bcf, which is 4.3 percent above the 5-year (2003-2007) average.

 

·                        The spot price for West Texas Intermediate (WTI) crude oil increased $5.41 per barrel on the week, trading yesterday at $109.86 per barrel or $18.94 per MMBtu.

 

 

Prices:

From a recent low point of less than $6 per MMBtu before the beginning of winter, natural gas prices have now risen about 70 percent or more. The Henry Hub price traded at $9.69 on Wednesday, March 12, resulting in a weekly increase of $0.32 per MMBtu, or 3.4 percent. Twice during the report week, the Henry Hub average price exceeded $9.80 per MMBtu, representing the highest prices at the hub since January 3, 2006, when the Henry Hub price traded just below $10 as prices were easing off record highs following Hurricanes Katrina and Rita. Other spot prices along the Gulf Coast in Louisiana and Texas also registered increases between $0.07 and $0.32 per MMBtu, resulting in an average regional price of $9.61 in Louisiana and $9.45 in East Texas yesterday (Wednesday, March 12).  

 

Even though the weather in much of the country has become warmer in the past several days, a significant winter storm moved through the middle of the country and buried the Ohio Valley in snow this report week, likely providing price support in consuming areas in the Northeast and Midwest. In the Northeast, the average price yesterday was $10.37 per MMBtu, which was 20 cents higher than the previous Wednesday. Significant variability in pricing occurred during much of the report week, including a large decrease exceeding $0.50 per MMBtu at several market locations on Monday, March 10, in response to warmer air moving into the region. During the week, the average spot price in the Columbia Appalachian pool increased $0.42 per MMBtu to $10.24, which was the highest net change of any trading location in either the Northeast or Midwest regions. As extreme weather conditions increased heating load in the Ohio Valley region, Columbia Gas Transmission Corporation as well as various natural gas transportation providers reported tight operating conditions. This reduction in transportation flexibility primarily affects shippers who have purchased less expensive, non-firm capacity that is subject to interruption during peak demand periods.

 

The Lower 48 States continued to receive a relatively low level of imports of liquefied natural gas (LNG).  LNG imports so far this month are about 44 percent below the level of last year.  This reduction in supplies also is contributing upward pressure on prices.  LNG imports during the report week averaged about 800 million cubic feel (MMcf) per day, according to sendout data published on company websites. For this report week, the Trunkline LNG terminal in Lake Charles, Louisiana, reported a relatively low average sendout volume of 30 MMcf per day in regasified LNG. Additionally, activity was limited at Dominion’s terminal in Cove Point, Maryland with sendout averaging just 170 MMcf per day. Meanwhile, activity has not been affected as significantly at the Suez North America LNG terminal in Everett, Massachusetts, where average sendout volumes of more than 470 MMcf per day were reported. The reduction in U.S. LNG imports reflects changes in LNG supply and demand across the world. LNG cargoes are heading to Europe and Asia, where buyers continue to purchase LNG at much higher prices than have prevailed in U.S. markets.

 

 

 

Futures prices increased at the NYMEX, likely because of wintry weather in the Midwest and East and higher prices for competing products. The price of the near-month contract (for April delivery) rose by $0.27 per MMBtu this week to $10.011 at the close of trading on Wednesday, March 12. During the week, higher crude oil prices (including some intraday trading at more than $110 per barrel) likely provided upward pressure on all energy commodities. The largest daily natural gas price increase of the week ($0.25 per MMBtu) for the near-month contract occurred on Monday, March 10, a day during which the price of crude oil advanced $2.75 per barrel ($0.47 per MMBtu) to $107.90. However, price increases likely also resulted from continuing cold, which has boosted space-heating demand and a pattern of large storage withdrawals this heating season. The current April contract price of $10.011 per MMBtu is $1.08 per MMBtu higher than the monthly settlement price for the January 2008 contract of $8.93. It is also significantly higher than both the April 2007 expiration price of $7.558 per MMBtu and the April 2006 contract price of $7.233 at expiration.

 

Contracts for futures prices beyond the near-month contract all generally increased 30 cents per MMBtu or more during the week. At the end of trading yesterday, the 12-month strip, which is the average for futures contracts over the next 12 months, was priced at $10.50 per MMBtu, an increase of about 34 cents since last Wednesday. Forward prices are steadily higher through the remaining months of 2008 and January 2009. The highest-priced contract in the 12-month strip is the January 2009 contract, which closed at $11.131 per MMBtu on Wednesday, March 12.

 

Recent Natural Gas Market Data

 

Storage:

Working gas in storage decreased to 1,398 Bcf as of Friday, March 7, 2008, according to EIA’s Weekly Natural Gas Storage Report (see Storage Figure). This report week’s implied net withdrawal of 86 Bcf is 8 percent higher than the 5-year average withdrawal of 80 Bcf for the week. However, the size of the net withdrawal is substantially less (17 percent) than the withdrawal of 104 Bcf for the comparable week last year. Storage levels as of March 7 were still 4.3 percent above the 5-year average, despite the continuing relatively large withdrawals from storage in the past several weeks. If net withdrawals were to equal the 5-year average for the remainder of the heating season, underground storage levels would fall to a low of 1,299 Bcf before the end of the traditionally heating season (April 1).

 

This week’s above-average withdrawal came during a week when it was warmer than normal for the country as a whole, but temperatures in the Midwest were significantly colder than normal. Temperatures across the country were 2.9 percent higher than normal, as measured by National Weather Service heating degree-days (HDDs) for the week ended March 6. However, in the East North Central Census Division, which is home to a large population of natural gas users for space-heating, the weather was 4 percent colder than normal, in terms of HDDs (see Temperature Maps and Data).

 

 

 

Other Market Trends:

EIA Releases March 2008 Short-Term Energy Outlook. The Energy Information Administration’s (EIA) latest Short-Term Energy Outlook (STEO) projects that the Henry Hub spot price will average about $8.18 per thousand cubic feet (Mcf) in 2008 and $7.95 per Mcf in 2009. Furthermore, according to the March 11 report, the February 2008 price averaged at $8.76 per Mcf, which was 51 cents per Mcf more than the average January spot price. The relative price increase in February was primarily the result of cold weather and higher space heating demand, which exerted upward pressure on prices. Overall in 2008, total natural gas consumption is expected to grow by 0.7 percent, slowing down significantly from the 6.4-percent growth observed in 2007. In 2009, however, natural gas consumption is expected to reach a record high of 23.4 trillion cubic feet (Tcf), or about 0.8 percent higher than the 2008 total consumption. Marketed natural gas production is projected to increase by 2.9 and 0.3 percent in 2008 and 2009, respectively, with the domestic production increase driven by new deepwater supply infrastructure that came online at the end of 2007. Furthermore, development of unconventional supply sources in the Lower 48 States is expected to result in a 2.5-percent onshore production increase in 2008. Imports of liquefied natural gas (LNG) in 2008 are expected to be 770 Bcf, which is about the same level imported in 2007, increasing to 995 Bcf in 2009. The increase in the 2009 LNG imports is expected to occur as new liquefaction capacity in Qatar, Equatorial Guinea, Nigeria, and Norway results in an increase of LNG shipments to the United States. 

 

 

GAO Releases Report on DOE R&D Budget. The General Accountability Office (GAO) released a report on the Department of Energy’s (DOE) renewable, fossil, and nuclear energy research and development (R&D) programs, as well as key challenges in developing and deploying advanced energy technologies. DOE’s budget authority for renewable, fossil, and nuclear R&D fell 92 percent from its $6 billion peak in fiscal year 1978 to $505 million in fiscal year 1998, adjusted for inflation. Since then, the R&D budget has increased to $1.4 billion in fiscal year 2008. According to the GAO report, energy R&D funding was high in the late 1970s as a result of the 1973 energy crisis and the constricted oil supplies. However, the return of oil prices to more moderate levels in the 1980s brought about a significant decrease in R&D funding. DOE’s energy R&D program has so far focused on reducing high up-front capital costs, improving the operating efficiency of advanced energy technologies, and reducing emissions of carbon dioxide. With $57.5 billion spent over the past 30 years for R&D on these technologies, the U.S. energy portfolio did not change significantly. Fossil energy continues to provide the bulk of the nation’s energy at 85 percent compared with 93 percent in 1973. With the lack of change in the energy portfolio, the GAO report concluded that DOE’s energy R&D funding alone will not be sufficient to deploy advanced technologies, and that coordinating energy R&D with other Federal energy-related programs and policies will be necessary. Furthermore, other governments and the private sector will have an important role in developing and deploying advanced energy technologies that could result in a change of the energy portfolio.

 

 

Natural Gas Transportation Update:

·     Northwest Pipeline Company reduced the capacity at its Sumas compressor station in Sumas, Washington, from 1,313,000 decatherms (Dth) per day to 800,000 Dth per day as a result of engine damage that was discovered during routine inspections on Units 7 and 8. Emergency repairs are ongoing and both units are expected to return to full service by March 16.

·     Northwest also announced that turbine replacement at its Cisco compressor station in Utah was completed on March 6, ending the associated declared deficiency period. Cisco compressor station was reset to its design capacity of 395,000 Dth per day for Friday (March 7).

·     ANR Pipeline Company reported that based on current operating conditions along the Southwest Mainline, the receipt capacity at Rockies Express West Interconnect will be limited to 200,000 Dth per day on March 13 and until further notice. The capacity reduction likely will affect firm secondary and interruptible transportation services.

·     Tennessee Gas Pipeline Company declared a force majeure event on Wednesday, March 12, for several meters located in South Marsh Island 2 Area in South Marsh Island, Louisiana. The force majeure was necessitated by an explosion that occurred late Tuesday in the engine room of a commercial diving vessel that was in the process of decommissioning a small segment of ANR Pipeline offshore Louisiana. Meanwhile, Tennessee requires shippers to keep physical flows at zero until further notice. 

 

Short Term Energy Outlook