Natural gas outlook: Spot prices decline with cooler temperatures

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Prices
With the exception of an almost across the board increase in prices on Friday, August 12, spot prices fell at most trading locations across the country this report week, with many ending the week below $4. The price increase on Friday was likely a response to the release of the storage report showing below-expected builds. The Henry Hub spot price averaged $3.97 per MMBtu yesterday, its lowest level since March of 2010. Northeast prices fell during the week, but in general remained above $4, with prices at Transcontinental Pipeline’s Zone 6 pricing point for delivery into New York City declining during the report week from $4.41 per MMBtu last Wednesday to $4.20 yesterday.

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Declining temperatures this week led to a considerable drop in consumption of natural gas for power generation. Power burn fell almost 19 percent week over week, according to data from Bentek Energy Services, LLC. Supply declined slightly under 1 percent during the week as declines in LNG and Canadian imports offset ever so slight production increases. Dry production increased 0.2 percent from the previous week, while Canadian imports fell 10.4 percent and LNG imports declined by over 30 percent, with LNG imports averaging only 314 million cubic feet (MMcf) per day this week.

At the New York Mercantile Exchange, the price of the near-month contract (September 2011) fell by $0.070 per MMBtu, from $4.003 last Wednesday to $3.933 yesterday. The price of the 12-month strip (the average of the 12 contracts between September 2011 and August 2012) fell about 2 percent on the week, from $4.371 per MMBtu last Wednesday to $4.303 per MMBtu yesterday.

More Price Data

Storage
Working natural gas in storage rose to 2,833 Bcf as of Friday, August 12, according to EIA’s WNGSR (see Storage Figure). Following a net injection of 50 Bcf from the previous week, stocks are now 175 Bcf below last year and 73 Bcf less than the 5-year average. The injection marks the end of five consecutive weeks of below-average builds. Last year’s build was just 28 Bcf and the 5-year average build is 43 Bcf.

The Producing Region registered a net withdrawal for the fifth consecutive week. Consistently warm weather in the region has prevented the relatively large builds earlier in the year from continuing. Stocks in the Producing Region are now just 50 Bcf above the 5-year average. Stocks in the West are now 3 Bcf below the 5-year average level; however, they have built faster than average each week since June 10th. The East Region is 120 Bcf below the 5-year average.

Temperatures during the week ending Thursday, August 11, averaged 77.0 degrees, 2.1 degrees warmer than normal, but 2.3 degrees below last week (see Temperature Maps and Data). Temperatures were above average in all Census divisions except the Pacific. The West South Central was warmest at 86.1 degrees, 6.1 degrees above average. Cooling degree-days were about 18 percent above normal nationwide.

More Storage Data

Other Market Trends
ERCOT Contracts with Power Generation Owners to Add Additional Capacity. The Electric Reliability Council of Texas announced temporary contracts through October with two power generation owners to bring back online four previously mothballed natural gas-fired generators in cases of extreme heat. Garland Power and Light and NRG Energy each own two of the generators, which total about 400 megawatts. The generators will only be brought online if necessary to prevent extreme measures such as rolling blackouts. Due to extreme heat this summer, electricity use in Texas has been exceptionally high, and increasing demand for energy has put stress on generators within the ERCOT area. ERCOT also noted that if extreme drought conditions in the State continue, it could lead to outages because of power plant cooling water issues. More information is available at: http://www.ercot.com/news/press_releases/show/424

Angola Set to Export LNG in 2012. EIA released a Country Analysis Brief on Angola this week, an OPEC member country and the second largest crude oil producer in Africa after Nigeria. Angola currently vents or flares most of its natural gas (which is associated with oil production), but is expected to soon begin exporting it and using a small amount for domestic consumption. Chevron and Sonangol, Angola’s national oil company, are currently building the country’s first LNG export terminal, which is expected to begin operations by 2012. The terminal will process 1.1 billion cubic feet of associated gas per day.

 More summary data.


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