Natural Gas Prices Rise on the Spot Market - $9.92/MMBtu

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Prices

Since last Wednesday, December 30, natural gas spot prices increased in all markets east of the Rockies. Frigid temperatures throughout most of the lower 48 States and rising crude oil prices appear to have contributed to rising natural gas prices. Price increases since last Wednesday ranged between $0.06 and $7.89 per MMBtu. In general, prices increased by less than $1 per MMBtu at most market locations on the week. However, significant price run-ups in select regions of the lower 48 States characterized the week. The largest price increases were generally concentrated in the heavy natural gas heating demand areas of the Northeast and Midcontinent. In the Northeast region, prices climbed between $1.01 and $4.19 per MMBtu at most market locations, while the Midcontinent posted gains ranging between $1.00 and $2.31 per MMBtu. The largest weekly price increase in the lower 48 States occurred at the Florida citygate, where prices rose $7.89 per MMBtu, or 127 percent, to average $14.12 per MMBtu in trading yesterday. This substantial price increase may be the result of high natural gas demand in the region, which contributed to constrained pipeline capacity and an Overage Alert Day on the Florida Gas Transmission System (see Transportation Update below). Although price increases elsewhere were significantly less pronounced, weekly gains of more than 10 percent occurred at most market locations. In contrast to the overall upward trend in the Northeast and Midcontinent, prices in northern California and a couple points in the Rockies declined between 5 and 26 cents per MMBtu, or about 1 to 2 percent, on the week.

With the recent price increases, natural gas spot prices at the Henry Hub are now trading above year-ago levels. With the persistence of wintry weather throughout most of the lower 48 States since December 23, natural gas prices are now trading above year-ago levels for the first time since October 2008. At $6.47 per MMBtu in trading on January 6, prices at the Henry Hub were 9 percent, or 37 cents per MMBtu, above year-ago levels. Natural gas spot prices at the Henry Hub consistently have traded below year-earlier levels since October 6, 2008.

Natuarl Gas Outlook: Spot Prices Rise With Increases Over 10 Percent

At the NYMEX, the prices for natural gas delivery contracts through January 2011 increased by roughly 20 cents per MMBtu, or about 3 percent, during the report week. On the week, the price of the February contract increased 30 cents per MMBtu, or about 5 percent, posting the largest gain on the 12-month (February 2010 through January 2011) futures strip. The other remaining 11 contracts on the 12-month strip rose between 13 and 26 cents per MMBtu, or about 2 to 4 percent. Overall, prices for the 12-month futures strip averaged $6.19 per MMBtu as of Wednesday, January 6. Prices for delivery for the remainder of 2009-2010 heating season (February 2010 through March 2010) averaged $5.98 per MMBtu. The January 2010 contract expired in trading on December 29, 2009 at $6.01 per MMBtu, climbing $2.39 per MMBtu, or 66 percent, during its tenure as the near-month contract. Since becoming the near-month contract on December 30, the February 2010 contract has traded at a discount to the Henry Hub spot price, suggesting that producers have incentives to withdraw natural gas from storage to meet current demand for natural gas.

Storage

Working gas in storage decreased to 3,123 Bcf as of Friday, January 1, according to EIA’s Weekly Natural Gas Storage Report (see Storage Figure). The implied net withdrawal was 153 Bcf, compared with last year’s net withdrawal of 61 Bcf for the report week. Colder-than-normal temperatures likely contributed to the above-normal rate of withdrawals during the report week. Working gas inventories are 286 Bcf higher than year-ago levels and 316 Bcf above the 5-year average level (2005-2009). Working gas in storage continues to exceed historical levels by significant margins for this time of year in each of the three storage regions.

Temperatures were generally colder than normal in most Census Divisions in the lower 48 States during the week ended December 31, 2009. Based on the National Weather Service’s degree-day data, temperatures in the lower 48 States during the week were, on average, about 1 degree colder than normal and 8 degrees colder than last year’s levels (see Temperature Maps and Data). Temperatures were warmest in the Pacific Census Division, where the average temperature was 46 degrees. Elsewhere in the lower 48 States, average temperatures ranged between 19 and 40 degrees. In contrast to the rest of the lower 48 States, the Middle Atlantic and East North Central Census Divisions reported warmer-than-normal temperatures.

Natuarl Gas Outlook: Spot Prices Rise With Increases Over 10 Percent

Other Market Trends

Cold weather increases residential natural gas consumption by 16 percent in October. EIA released the December 2009 Natural Gas Monthly (NGM), including data through October 2009, on December 29. Delivered volumes of natural gas increased from 47.3 Bcf per day in September to 48.4 Bcf per day in October, likely the result of cooler weather and increased space-heating demand. Residential consumption jumped from 4 Bcf per day in September to about 8 Bcf per day in October. Residential consumption in October was almost 16 percent higher than its year-ago level of 6.9 Bcf per day and 18 percent higher than the 5-year (2004-2008) average for the month of 6.8 Bcf per day. Additionally, heating degree-days in October 2009 totaled 331, 18 percent higher that the 281 heating degree-days in October 2008. Industrial and commercial consumption also increased, while deliveries to electric power customers declined from 22.9 Bcf per day in September to 17.3 Bcf per day in October. According to the NGM, dry natural gas production rose to 57.6 Bcf per day in October 2009, from 56.6 Bcf per day the previous month. Production in October was about 5 percent higher than the same month in 2008, when dry production totaled 54.9 Bcf per day. Aggregate dry production from January through October 2009 was 17,565 Bcf, compared with 16,903 Bcf for the same period in 2008. Wellhead prices increased about 23 percent, from $2.92 per thousand cubic feet (Mcf) in September to $3.60 per Mcf in October. The average wellhead price in October was about 43 percent lower than their year-ago levels of $6.36 per Mcf.

Lower Prices Hurt Oil and Natural Gas Revenues in 2008. EIA released Performance Profiles of Major Energy Producers 2008 on December 24, 2009, which included results from reports of financial and operating data from 27 U.S.-based major energy companies. Net income of oil and natural gas producers submitting information to EIA fell to a 5-year low in 2008, dropping from $127 billion in 2007 to $87 billion in 2008. According to the report, declines in both oil and natural gas prices over 2008 slowed revenue growth, while operating costs increased sharply. Both upstream and downstream profits fell in 2008. Worldwide production of natural gas increased, according to the report, while worldwide reserve additions fell. When reporting reserves, companies must use year-end prices. The decline in prices over 2008 likely led to the decrease in reserve additions, according to the report. The companies included in the report represent 41 percent of U.S. crude oil production, and 43 percent of U.S. natural gas production in 2008.

EIA Issues Report on Revisions in Natural Gas Monthly Consumption and Price Data, 2004-2007. On December 31, 2009, EIA issued a report detailing revisions to preliminary data published in the Natural Gas Monthly prior to publication as final data. The preliminary data reflect Form EIA-857, “Monthly Report of Natural Gas Purchases and Deliveries to Consumers,” while final adjusted figures reflect results from the EIA-176, “Annual Report of Natural and Supplemental Gas Supply and Disposition.” Overall, there was no pattern in 4-year and annual mean revision errors, suggesting that a variety of factors, including market conditions and State- and respondent-specific issues, were responsible for the revisions. The full report is available here: http://www.eia.doe.gov/pub/oil_gas/natural_gas/feature_articles/2009/ngmrevisionstudy/ngmrevisionstudy.pdf

FERC Releases Environmental Impact Statement on the Bison Pipeline Project. On December 29, 2009, the Federal Energy Regulatory Commission (FERC) released an environmental impact statement (EIS) for natural gas pipeline facilities by Bison Pipeline, LLC. The Bison Pipeline would traverse Wyoming, Montana, and North Dakota. The pipeline would consist of 301.2 miles of new 30-inch diameter pipeline with the capacity to transport 477 million cubic feet (MMcf) of natural gas per day. Facilities would also include a compressor station, 2 meter stations, 19 mainline valves, and 3 pig launcher facilities. The pipeline would have a connection with the Northern Border pipeline system near Northern Border’s Compressor Station #6, located in Morton County, North Dakota. FERC’s EIS concluded that the project would result in some adverse environmental impacts. However, the proposed project’s compliance with applicable laws, regulations, and additional measures the EIS recommended during construction and operation would mitigate these adverse impacts.

Natural Gas Transportation Update

- Many interstate pipelines issued operational notices limiting flexibility for imbalances this week, citing extreme weather conditions and high demand for transportation services. In the Midwest, Northern Natural Gas Company today (January 7) issued a System Overrun Limitation (SOL) for its market areas in Iowa, Minnesota, and Wisconsin. The SOL restricts deliveries from the system exceeding nominations. The company cited “much lower-than-normal system-weighted temperatures” when informing customers that quantities received above nominations will be subject to penalties. As a result of extreme temperatures in supply areas, Natural Gas Pipeline Company of America (NGPL) reported being at capacity for delivery points in Indiana and Illinois. NGPL also reported interruptions to supply in Arkansas on Tuesday, January 5, as a result of cold weather. “Freeze-offs,” or temporary interruptions of production because of equipment malfunctions resulting from cold temperatures occurred in the State, affecting more than 200 MMcf per day of supply on the system, according to the pipeline company.

- As the coldest temperatures of the current weather system moved across the country, pipeline companies with market areas in the Northeast prepared for large-scale demand increases. Citing high demand conditions on its system, Texas Eastern Transmission Corporation, a subsidiary of Spectra Energy Corporation, on Wednesday, January 6, announced interruptions of all non-firm services for supplies through Chester Junction, located outside of Philadelphia, Pennsylvania, as well as deliveries downstream of Perulack, Pennsylvania, which is slightly west of Harrisburg. Similar restrictions are in place at critical areas on Algonquin Gas Transmission Company and East Tennessee Natural Gas Company, both of which Spectra Energy also owns.

- With extreme weather conditions also occurring in the Southeast, pipelines such as Florida Gas Transmission Company (FGT) and Southern Natural Gas Company (SNG) reported restrictions in transportation services as well. FGT on Tuesday, January 5, reduced the acceptable level of imbalances on its system from 10 percent to 5 percent, citing very high demand flow and temperatures below 40 degrees in its system territory. SNG was allocating available capacity among shippers for the gas day of Thursday, January 7. In addition, SNG experienced an unscheduled outage on its 24-inch diameter second North Main Line in west-central Mississippi, upstream of its Louisville Compressor Station. SNG isolated and removed the line from service Wednesday morning, but confirmed that there would be no immediate impact to shipper nominations.

- Also in the Southeast, Monroe Gas Storage Company, LLC declared a force majeure event for January 6 and 7 because of the extreme weather in Mississippi. The company, which owns a storage field with a working gas capacity of 12 Bcf in Monroe County, Mississippi, said that operational freeze-offs were affecting its ability to withdrawal gas. The company ceased providing interruptible withdrawal services, and reduced all firm withdrawal service on a pro-rata basis to approximately 62 percent of maximum contract withdrawal quantities.