• Since Wednesday, February 11, natural gas spot prices declined at virtually all market locations in the Lower 48 States, with decreases ranging between 3 and 78 cents per MMBtu. Prices at the Henry Hub fell 33 cents per million Btu (MMBtu), or about 7 percent, to $4.35 per MMBtu.



• At the New York Mercantile Exchange (NYMEX), the futures contract for March delivery at the Henry Hub settled yesterday (February 18) at $4.214 per MMBtu, declining 32 cents per MMBtu or about 7 percent during the report week.



• Natural gas in storage was 1,996 billion cubic feet (Bcf) as of February 13, which is about 8.4 percent above the 5-year average (2004-2008), following an implied net withdrawal of 24 Bcf during the report week.



• The spot price for West Texas Intermediate (WTI) crude oil decreased $1.26 per barrel since Wednesday, February 11, to $34.67 per barrel or $5.98 per MMBtu.

Natural gas spot prices continue to show considerable weakness, decreasing at all market locations in the Lower 48 States, since Wednesday, February 11. Easing heating demand due to moderating temperatures and declining crude oil prices likely contributed to price declines posted since Wednesday, February 11. However, pricing patterns in the Lower 48 States during the current heating season suggest that natural gas markets are sufficiently supplied to meet consumer demand and have considerable slack at the margin, as prices appear somewhat less responsive to changes in space heating demand compared with recent heating seasons. In addition to increased onshore natural gas production this year and relatively high levels of working gas in storage, key factors contributing to the softness of natural gas prices likely include a lower level of industrial demand for natural gas as a result of the ongoing economic downturn and relatively low crude oil prices. The price declines reported this week continued the general downward price trend that has prevailed since July 2008. Natural gas prices at the Henry Hub are now at $4.35 per MMBtu, or 67 percent below the last peak of $13.31 per MMBtu reported on July 2, 2008.

On a regional basis, price declines were widespread, occurring in all regions of the Lower 48 States. Average regional price declines ranged between 9 and 44 cents per MMBtu since last Wednesday, February 11, with the Midcontinent region posting the smallest regional declines and the California region recording the largest. The average Northeast region price for natural gas was $4.90 per MMBtu—the largest in the Lower 48 States. Similarly, prices at the New York citygate remained the highest in the Lower 48 States, averaging $5.18 per MMBtu in trading yesterday (February 18). The West Texas region reported the lowest regional prices, averaging $3.20 per MMBtu on Wednesday, February 18.

Natural gas prices are significantly below the levels reported last year at this time. As of February 18, natural gas prices ranged from $4.41 to $7.23 per MMBtu, or 49 to 64 percent below levels at this time last year at most market locations. At the Henry Hub, prices were $4.56, or 51 percent below the 2008 level. The year-over-year price declines were even more pronounced in the Northeast region, where prices were on average $5.62 per MMBtu below last year’s levels. At $4.25 per MMBtu, the Henry Hub spot price is at its lowest level since October 2006.

At the NYMEX, the prices for natural gas delivery contracts through February 2010 fell between 32 and 43 cents per MMBtu, or 6 to 7 percent, since Wednesday, February 11. On Tuesday, February 17, the February futures contract settled at $4.203, the lowest level for a near-month futures contract since September 27, 2006, when the near-month contract settled at $4.201. Prices for the 12-month futures strip (March 2009 through February 2010) averaged $4.95 per MMBtu as of Wednesday, February 18, declining by roughly 38 cents per MMBtu, or about 7 percent, during the report week.

Working gas in storage decreased to 1,996 Bcf as of Friday, February 13, according to EIA’s Weekly Natural Gas Storage Report (see Storage Figure). The implied net withdrawal of 24 Bcf was the equivalent of only 15 percent of both last year’s net withdrawal of 157 Bcf and the 5-year average (2004-2008) of 155 Bcf for the same report week. Working gas inventories are now 177 Bcf higher than their year-ago levels and 155 Bcf above the 5-year average. While working gas in storage now exceeds historical levels by significant margins, the Consuming East region remains 57 Bcf below the 5-year average and 39 Bcf below last year’s levels, or 6 and 4 percent, respectively.

National and regional net storage changes match or set record levels. The net decline of 24 Bcf in the Lower 48 States matches the record for smallest withdrawal in the month of February since the beginning of 1994 when weekly storage data began. A net withdrawal of 24 Bcf last occurred during the week ending February 24, 1995. The East Region recorded its smallest weekly withdrawal ever during February. The Producing Region had a net addition of 16 Bcf, which matches the injection reported for the week ending February 27, 1998, and is only the fourth net injection to occur during February since 1994.

Warmer-than-normal temperatures likely contributed to the relatively small net withdrawal. The National Weather Service’s degree-day (HDDs) data show that temperatures in the Lower 48 States during the week were higher than both normal and last year (see Temperature Maps and Data). Overall, heating degree-days in the Lower 48 States were almost 25 percent lower than normal and 22 percent lower than last year. The warmer-than-normal temperatures prevailed in all Census Divisions, except for the Pacific. Where temperatures exceeded normal, average daily temperatures were at least 8 degrees above normal, except for New England (4 degrees) and the Mountain (1 degree) Census Divisions.

An Update on Natural Gas Volumes in Underground Storage. Natural gas in underground storage decreased to 1,996 Bcf as of February 13, 2009. This storage level is relatively high for this time of winter, exceeding the 5-year average by 8.4 percent. High volumes of working gas in storage this late in the winter often cause concerns regarding the potential need to remove gas from storage to remain in compliance with contract provisions, which may specify maximum volumes at certain points that the customer can hold in storage. The sudden removal of large volumes from storage to meet such provisions might lead to a sudden influx of additional gas into the market, providing downward pressure on the price of natural gas on the spot market. The Energy Information Administration (EIA) researched contract provisions for 2007 and found that 27 or about one-quarter of the storage service companies, representing slightly more than half of U.S. working gas capacity, specify limits on the amount of natural gas firm storage that customers may hold in storage at the end of the withdrawal season or contract period. According to EIA’s U.S. Storage Drawdown Analysis Report, these companies operate 2,162 Bcf of working gas capacity. Based on the provisions in storage contracts, EIA estimated that 2,001 Bcf of capacity was available for storing natural gas at the end of the 2007-2008 heating season. Assuming the contractual framework has remained fairly stable and reflects storage requirements also for the current season, these provisions are unlikely to cause market disruptions. So far this February, cumulative net storage withdrawals of 183 Bcf are less than 60 percent of the 5-year average withdrawals over the same period. Should the total net withdrawals through the end of March match the 5-year average withdrawal for this period of approximately 471 Bcf, total volume of storage at the end of the heating season (March 31) will be about 1,525 Bcf. With an aggregate volume of this magnitude, conditions in the industry are unlikely to include many situations that would require owners of gas in storage to withdraw additional supplies from storage before the end of the winter.

Natural gas rigs continue to decline in response to the lower levels of natural gas prices. The natural gas rotary rig count fell by 50 to 1,054 as of Friday, February 13, 2009, about a 5 percent drop from the previous week, according to data published by Baker Hughes, Incorporated. This is the 12th consecutive week the rig count has decreased. Year-to-date, the rig count has fallen 17 percent, from 1,267 rotary rigs, recorded on the week ended January 2, 2009. Additionally, the rig count is 34 percent lower than its high of 1,606, the highest number of gas rigs in the more than 21 years since July 1987, when publication of drilling rig data by fuel type began. This peak was reached on August 29, 2008, and again on September 12, 2008. While rig counts have fallen overall, decline patterns have varied by the type of rig. Horizontal oil and gas rigs have fallen less swiftly and began declining later than their directional and vertical counterparts (see graph). Horizontal rotary rig counts, accounting for both oil and gas drilling, have fallen 24 percent to 497 from their 2008 high of 650, recorded the week ended October 31, 2008. On the other hand, vertical oil and gas rigs have dropped 43 percent to 583 from their high of 1,017, reached the week ended August 29, 2008. Directional rigs have fallen 36 percent from their high of 404, reached the week ended September 19, 2008. Although the overall number of horizontal rigs has declined, they are an increasingly larger percentage of the total oil and gas rig count.

• Gulf South Pipeline announced that it will be performing system maintenance at the Kiln compressor station in Hancock County, Mississippi, between March 3 and 5, 2009. The compressor station will not be available during the maintenance, which will result in a capacity reduction of 125,000 decatherms per day.



• Tennessee Gas Pipeline issued an update to the force majeure notice posted on February 6, 2009, announcing maintenance and inspection on the East Leg of the Blue Water system. This maintenance revealed two leaks on the Triple T line during the pipeline repressurizing process. The pipeline company has been assessing the damage and securing the equipment necessary to make repairs. However, Tennessee reported that weather conditions are inhibiting progress on assessment and repairs. Current damage assessments indicate that the repairs will be completed within 2 weeks.



• Northwest Pipeline lifted the Stage III overrun entitlement for all shippers north of the Plymouth compressor station as of February 18, 2009. The pipeline urged its customers to align their markets with adequate supply to avoid takes in excess of their scheduled quantities. If significant excess takes occur, Northwest may be forced to reinstate the overrun entitlement. Northwest added that maintaining storage and balancing natural gas loads north of Kemmerer compressor station located in Wyoming is essential to the operation of Northwest Pipeline during the winter months.



• Mississippi River Transmission Company issued a system protection warning (SPW) as a result of cold weather conditions in its service area on February 19. The pipeline will not schedule any interruptible transportation volumes north of the Glendale compressor station in Arkansas, and the pipeline will limit firm transportation volumes to their primary direction of flow on the system north of Glendale. The SPW will remain in effect until further notice.

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.