Natural gas outlook: April 2011 contract price up 11 cents

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Prices

Prevailing natural gas prices continued their decline during the week except for a brief reversal around Monday and Tuesday when a brief cold snap passed. The New York citygate was reflective of pricing points showing a loss over the week, although at the extreme end, falling from an elevated level of $7.96 per MMBtu last Wednesday to $4.44 per MMBtu yesterday. However, during the week, the New York citygate price jumped $0.26 per MMBtu over Monday and Tuesday when a cold snap passed, hitting a peak of $4.67 per MMBtu before giving back $0.23 of the gain yesterday. The Chicago citygate was also representative of the general weekly trend and dropped from $4.00 per MMBtu the previous Wednesday to $3.96 per MMBtu yesterday, leaving the price $0.69 per MMBtu less than last year.

However, at the NYMEX, the price of the April 2011 contract increased 11.2 cents (2.9 percent) over the week from $3.818 per MMBtu to $3.930 per MMBtu. The NYMEX price has risen in 3 of the past 4 days.

Over the week, the Henry Hub price followed the direction of the NYMEX (but much more muted) rising 0.5 percent from $3.79 per MMBtu to $3.81 per MMBtu. The Henry Hub price is now down 70 cents (nearly 16 percent) from last year.

An overall falloff in natural gas consumption, likely due to moderating temperatures during the week, was a prime catalyst causing the recent general price softness to continue. According to estimates from BENTEK Energy Services, LLC, domestic consumption this week decreased by 4.9 percent from the previous week. A decrease in the residential/commercial sector of 7.1 percent led the decline, followed by a reduction of 2.7 percent in the industrial sector, and a drop of 1.6 percent in the power sector.

According to BENTEK estimates, the week’s average of 66.9 Bcf per day of total nominal gas supply represented an increase of 0.1 percent from last week’s value. Domestic gas production was up 0.6 percent, accounting for the bulk of the increase. BENTEK notes that Monday, March 7 set a new production record at 63.4 Bcf per day. Canadian imports (about 5.8 Bcf per day) were down 7.5 percent for the week and remain 9.1 percent below year-ago levels. Things were little changed in the liquefied natural gas (LNG) arena, where imports (almost 1 Bcf per day) surged 29.9 percent above last week but remain 25.7 percent below the corresponding week last year.

Storage

Working natural gas in storage fell to 1,674 Bcf as of Friday, March 4, according to EIA’s WNGSR (see Storage Figure). The 71 Bcf draw was less than the 5-year average draw for the week of 107 Bcf and last year’s draw of 112 Bcf. Stocks were 32 Bcf above last year’s level and 21 Bcf above the 5-year average of 1,760 Bcf.

Stocks in the Producing Region have increased for the second week in a row. Relatively mild weather in that part of the country along with increasing production has lead to this anomaly. Injections are typically not seen until later in March for the region.

Temperatures in the lower 48 States during the week ending March 3 were almost equal to normal and slightly warmer than last year. The National Weather Service’s degree-day data show that the temperature in the lower 48 States last week averaged 40.0 degrees, though different regions saw major differences (See Temperature Maps and Data). The Western and Midwestern regions were colder than typical, with the West North Central census division 6.9 degrees colder than normal. This was balanced by the East and South, which experienced relatively warm weather. Overall, heating degree-days were about 2 percent above normal but 9 percent below last year.

Other Market Trends

Short-Term Energy Outlook Forecasts Strength in Production. On March 8, EIA released the Short-Term Energy Outlook, which includes projections through 2012. Production in 2010 grew 4.4 percent to 61.8 Bcf per day. EIA forecasts production to continue to grow, but at slower annual rates of 0.8 percent in 2011 and 0.9 percent in 2012. EIA expects that the Henry Hub spot price will average $4.10 per MMBtu in 2011, a drop of $0.29 per MMBtu from the 2010 average. EIA expects the natural gas market to begin to tighten in 2012, with the Henry Hub spot price increasing to an average of $4.58 per MMBtu. Increasing consumption in 2012, led by strong growth in the electric power sector, contributes to higher 2012 prices and to an economic incentive for producers to resume drilling. At the end of the 2010-2011 winter heating season, EIA expects that about 1,549 Bcf of working natural gas will remain in storage.

Natural Gas Rigs Drop to Lowest Level in More Than a Year. According to data released by Baker Hughes Incorporated on March 4, 2011, natural gas-directed rotary rigs fell to 899, their lowest level since February 19, 2010. For several weeks prior to March 4, the rig count had hovered between 900 and 915. Horizontal rigs (including both oil and natural gas) also fell this week by 11 to 970. Directional and vertical rigs, on the other hand, both rose this week. Despite the decline this week, horizontal rigs remain at historically high levels, likely because of the implementation of more efficient horizontal drilling techniques in shale plays.

Natural Gas Transportation Update

  • Transcontinental Gas Pipeline Corporation, LLC (Transco) this week reminded customers that high utilization of firm services near Moore, South Carolina, is limiting the availability of interruptible transportation services near this location (downstream of Compressor Station 140). However, the pipeline company said that there would soon be relief from the current congestion. On May 1, Transco will bring a major expansion of capacity in the area into service. One of the facilities associated with this project is its new Compressor Station 135, to be near Anderson, South Carolina.

  • Destin Pipeline Company, LLC on Friday, March 4, again began transporting supplies from platforms in the offshore Gulf of Mexico after receiving assurance from a downstream pipeline that it was operational. The downstream pipeline was Tri-States Pipeline, which had shut down temporarily following unauthorized vehicle activity within the pipeline's right-of-way near Kiln, Mississippi. Because Tri-States Pipeline provides transportation service for the natural gas liquids carried by Destin from the offshore platforms, Destin was unable to provide service while the pipeline was offline and performing various inspections on the activity.

  • Columbia Gas Transmission, LLC on March 7 revealed plans that all 22 meters behind the Walgrove Compressor Station in Kanawha County, West Virginia, will be shut in for an estimated 19 days as the compressor station undergoes annual maintenance. The pipeline company estimated the impacted volume at 5 million cubic feet (MMcf) per day. Firm production quantities will be limited to minimal local market consumption.

  • Gulf South Pipeline Company, LP on Tuesday said planned maintenance will occur on a part of its pipeline for about 5 days starting March 14. The maintenance will be on its 12-inch diameter Fort Bend Line in Texas, during which its receipt point in Fort Bend, Texas, will not be available for service. The receipt point is operated by Atmos Pipeline.


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