Natural Gas Outlook: Spot Prices Increase Across The Board

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Prices
Cold weather this week pushed up space heating demand and played a role in the price increases that occurred across the country. At trading locations outside of the Northeast United States and Florida, price increases ranged between 9 and 42 cents, and prices were in the $4 - $5 per MMBtu range. The Henry Hub spot price rose 25 cents, from $4.21 per MMBtu to $4.46 per MMBtu. In general, price increases were most modest in the Rocky Mountains, ranging between 9 cents and 22 cents per MMBtu.

Although cold temperatures were present throughout much of the United States, the Northeast and Florida saw the most substantial price increases. The price of natural gas at the Florida Gas Transmission Citygate trading point more than doubled, increasing from $4.84 per MMBtu on December 1 to $10.56 per MMBtu on December 8. Citing the cold temperatures, Florida Gas Transmission issued pipeline restrictions this week (See Transportation Section). Temperatures dropped into the 30s and 40s in much of the State this week, leading to increased demand for heating and fears of damage to citrus groves. The fears of the cold weather were also reflected in the orange juice futures contract, which rose to its highest price since May 2007 this week.

The cold weather brought similar price increases to the Northeast. Prices increased by several dollars during the report week. At Transcontinental Pipeline’s Zone 6 pricing point for delivery into New York City, prices rose from $5.00 per MMBtu on December 1 to $9.81 per MMBtu on December 8. The largest daily increase occurred on Wednesday, when prices increased $2.90 per MMBtu from their settlement price of $6.91 per MMBtu on Tuesday. Average temperatures in much of the Northeast were in the 20s and 30s during the report week. As in Florida, it is not unusual for prices in the Northeast to spike during cold weather. Last year, the Transco Zone 6 New York City delivery point price ranged from $4.94 per MMBtu to $10.18 per MMBtu, and rose above $14 per MMBtu twice in January, when temperatures typically drop lower.

Natural gas consumption increased by almost 24 percent from the previous week, with total demand hitting a weekly high of 102.7 Bcf per day on Tuesday, according to estimates by BENTEK Energy Services, LLC. The bulk of the increase came from the residential and commercial sector, where demand was 34 percent higher than it was last week and 7 percent higher than it was during the same time last year. Consumption of natural gas for electric power use increased 21 percent, likely the result of homes that use electric power for heating. Supply of natural gas also increased this week by about 4 percent, as liquefied natural gas (LNG) sendout and Canadian imports increased. Production fell very slightly. Each day during the report week, demand exceeded supply by between 15 Bcf and 32.6 Bcf.



At the NYMEX, the price of the near-month contract (January 2011) rose from $4.269 per MMBtu on December 1 to $4.606 per MMBtu on December 8. The 12-month strip (the average of contracts from January 2011 to December 2011) also increased, from $4.407 per MMBtu to $4.690 per MMBtu. All 12 of the contracts in the 12-month strip increased during the report week, with the larger increases occurring at the front end of the strip. On December 8, 2009, the near-month futures contract (January 2010) settled at $5.114 per MMBtu.

Storage
Working natural gas in storage fell to 3,725 Bcf as of Friday, December 3, according to EIA’s WNGSR (see Storage Figure) The net draw of 89 Bcf is larger than the 5-year average draw of 74 Bcf and last year’s draw of 55 Bcf for the report week. But total inventory levels remain near the 5-year high for this time of year. The Producing region storage levels are now 48 Bcf above last year’s level, while the East region is 63 Bcf below last year’s level. Working gas stocks in the West region are 41 Bcf below last year at this time.

This week marks the first time in the current heating season that stocks have fallen in the Producing region. Mild temperatures in the southern part of the country and high production levels have kept the region’s stocks growing until now, while working gas stocks in the East and West regions have fallen. This pattern contrasts with last summer, when the region saw draws instead of the more typical builds due to hot weather and the resulting power generation and cooling demand.

Temperatures were colder than normal in the lower 48 States during the week ending December 2. The National Weather Service’s degree-day data show that the average temperature in the lower 48 States last week averaged 39.3 degrees, 1.9 degrees below normal, and 5.1 degrees below last year (See Temperature Maps and Data). Every region averaged colder temperatures than last year at this time, and every region outside the Northeast was colder than normal. The Pacific region had relatively mild average temperatures at 45.1 degrees, but this region was the chilliest relative to normal temperatures at 4.9 degrees below normal. Heating degree-days in the Pacific region were 31.1 percent higher than average compared to an increase of 7.7 percent for the lower 48 States as a whole.

Other Market Trends
EIA Forecasts Year-Over-Year Production Increase of 4 Percent in 2010. In EIA’s Short-Term Energy Outlook (STEO), released December 7, 2010, EIA forecast that natural gas marketed production will have increased in 2010 by 3.5 percent over 2009 levels, to 62.1 Bcf per day. In 2011, EIA expects production to level off, decreasing slightly to 62 Bcf per day, following five years of growth. The lack of production growth stems from projections of relatively low prices, which lead to reduced drilling activity. Annual average Henry Hub spot prices are also expected to decline slightly in 2011, falling $.04 per MMBtu from an average of $4.37 per MMBtu in 2010. This month’s STEO expects that in March 2011, inventories of working natural gas in storage will drop to 1,833 Bcf over the winter heating season, falling from its end-of-October level of 3,826 Bcf. This leaves storage levels above the five-year average (2006-2010) end-of-March inventory level of 1,576. The injection season in 2011 will begin with about 10 percent more working gas in storage that it did in March 2010.

STEO Updates Natural Gas Consumption Forecasting Methodology. Beginning with the December 2010 issue of the STEO, EIA will present natural gas consumption forecasts for the residential and commercial sectors that are consistent with recent methodological changes used for estimating consumption in the EIA’s Natural Gas Monthly (NGM). These changes help reduce the seasonal variation of the published balancing item (the balancing item reflects the difference between reported supply and demand at a national level). Much of the seasonality in the balancing item arose from the way survey respondents reported monthly consumption data to EIA. Many survey respondents, which include local distribution companies (LDCs), and some pipelines and municipals, reported deliveries to their residential and commercial customers corresponding to their billing cycle. However, this introduced bias into the results because meters read in the beginning or middle of the month reflected usage from at least part of the previous month, creating a lag in the reported data. To resolve this, EIA required survey respondents to also report the total volume of gas sent out to consumers on their system on a calendar-month basis beginning with August 2010. With these additional data, EIA revised its estimation methodology. More information about changes in the NGM methodology is available in the NGM’s Appendix C. The STEO model uses historical consumption to forecast future consumption. For a more accurate history of residential and commercial consumption, the STEO will forecast based on an estimated history that incorporates recent survey changes. The estimated history is based on heating degree-days and provides an approximation of what consumption might have been over the past several years. The range of 2011 forecasted monthly balancing items is about 2 Bcf per day narrower than previous years.

Natural Gas Transportation Update

- Pipeline companies this week were operating in full winter mode as throughput increased in response to the coldest weather to date this heating season. Several interstate pipelines, particularly those with service territories in the U.S. Northeast, issued operational notices limiting flexibility for imbalances, citing high demand for transportation services. El Paso Corporation’s Tennessee Gas Pipeline noted that an Imbalance Warning would stay in effect through the week for delivery into its zones 5 and 6 in the Northeast, but to date has not had to issue an operational flow order (OFO) with its most severe penalties for imbalances. Spectra Energy’s interstate pipelines each noted constraint points on their system, and reduced interruptible flows at these points. Spectra’s Texas Eastern Transmission Corporation (TETCO) on Monday announced it planned to require all delivery point operators to keep actual daily withdrawals from the system less than or equal to scheduled quantities. TETCO said there was no available capacity for non-firm customers downstream of the Chester Junction in Pennsylvania, on its Philadelphia Lateral. Similar restrictions were in place on Algonquin Gas Transmission Company, which Spectra Energy also owns. The constraint on the Algonquin system is at the pipeline’s compressor station in Cromwell, Connecticut. In the South, pipeline restrictions were enacted this week as the cold spell enveloped most of the region. However, these restrictions are now in the process of being lifted as temperatures return closer to normal levels for this time of year. Mississippi River Transmission Corporation today (December 9) lifted a System Protection Warning (SPW) that had been effective since Monday, December 6. The SPW restricted deliveries north of Glendale, Arkansas, for customers with interruptible service contracts. El Paso Corporation’s Southern Natural Gas reported today that it was considering lifting an OFO against short imbalances that had also been in place since Monday. With temperatures below freezing for two nights this week in Florida, Florida Gas Transmission (FGT) Corporation tightened the tolerance for negative daily imbalances from 20% to 15% starting on Tuesday, December 7.

- Colorado Interstate Gas Company (CIG) on Wednesday said it had completed repairs at its Mocane Compressor Station in Forgan, Oklahoma. An outage of one unit at the station prompted CIG to declare a force majeure Monday to reduce capacity from 67 million cubic feet per day (MMcf/d) to 46 MMcf/d.

- Tennessee Gas Pipeline Company on Wednesday reported that personnel from the company were responding to a reported release of natural gas into the atmosphere near its East Bernard compressor station (Station 17) in Wharton County, Texas. Tennessee had little information on the leak but said that the area in question has been isolated and pressures reduced in the pipeline. No fire or injuries were reported.

Source: U.S. Energy Information Administration



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