The natural gas rotary rig count, as reported by Baker Hughes Incorporated, rose by 2 this week to 600, after falling to a 10-year low of 598 last week. After increasing modestly to 936 active rigs in the fall of 2011, the natural gas rig count has dropped sharply. The oil rig count, currently at 1,382, has generally risen steadily since 2009, largely in response to increasing crude oil prices.
Natural gas rigs are currently down about 31 percent from their level at the same time last year, while oil rigs have risen by 45 percent over the same period. However, increased productivity from shale gas formations (generated by horizontal drilling and hydraulic fracturing) and rising associated production from expanding oil-directed development activity have helped maintain robust natural gas production.
At the NYMEX, the June 2012 contract increased from $2.618 per MMBtu last Wednesday to $2.737 per MMBtu yesterday, an increase of 11.9 cents per MMBtu (4.5 percent) over the period. The June 2012 contract led the futures market upturn with a 4.5 percent rally on expectations that hotter weather (and greater consumption) was approaching and that weekly inventory builds seemed to be moderating compared to the five-year average. The 3-Month Strip (average of June-July-August contracts) followed suit with a 10.7 cent per MMBtu (4.0 percent) gain for the week.
Movement in the Henry Hub day-ahead price reflected a widespread increase in market prices in this week’s cash market by rising 4.0 percent, from $2.50 per MMBtu the previous Wednesday to $2.60 per MMBtu yesterday. As the Spot Prices tab on the left shows, the Henry Hub cash price rose beginning last Thursday. During the same period, numerous other spot market pricing points exhibited similar gains and also held or increased slightly.
Nearly all downstream trading locations registered higher prices despite consumption dropping modestly this week. Spot prices at Transcontinental Pipeline’s Zone 6 trading point for delivery into New York City, which started the week at $2.64 per MMBtu, gained $0.13 per MMBtu over the week (Wednesday to Wednesday) to close at $2.77 per MMBtu (up 4.9 percent). Over the same period, the Chicago citygate spot price registered a 5-cent per MMBtu price gain (from $2.57 per MMBtu last Wednesday), ending the week at $2.62 per MMBtu (up 1.9 percent).
In the midst of seasonal temperatures throughout the more-populated regions over the past week, total consumption decreased slightly. According to estimates from BENTEK Energy LLC (Bentek), domestic natural gas consumption fell by 0.9 percent from last week. The residential/commercial sector led the decrease, posting a 9.1 percent decline, and the industrial sector registered a 0.8 percent decrease. The power sector, however, showed a partially offsetting 3.5 percent week-over-week gain attributed to increased power burn in Texas and key regions including the Northeast, Southeast, Midcontinent, and Rockies.