Prices

Natural gas spot prices posted declines at all market locations since Wednesday, August 19, as a result of relatively moderate temperatures in the lower 48 States and robust levels of natural gas in storage. Natural gas spot prices posted broad-based declines since last Wednesday, August 19, decreasing by as much as 39 cents per MMBtu, or 13 percent, this trading week. Factors contributing to the decline in natural gas prices likely included moderate cooling demand for natural gas and plentiful supplies, as well as falling crude oil prices. The largest price declines generally occurred in the northeastern markets, including the New York citygate and zone 2 of the Iroquois Pipeline, which both fell 39 cents per MMBtu. The smallest price declines since last Wednesday generally occurred at markets in the Rocky Mountains region, including the Cheyenne Hub, where the natural gas spot price fell by 10 cents to $2.57 per MMBtu.

Natural gas prices at the Henry Hub fell below $3 for the first time since August 8, 2002, falling to $2.78 per MMBtu in trading on Friday, August 21. Prices at the Henry Hub remained below $3 per MMBtu in subsequent trading days, reaching a 7-year low of $2.69 per MMBtu on Monday, August 24. At $2.76 per MMBtu on Wednesday, August 26, prices at Henry Hub were $5.26, or 65 percent, below last year’s level at this time. Current spot prices at market locations in the lower 48 States average about 62 percent below year-ago levels.

The approach of Hurricane Bill led to evacuations from the Sable Offshore Energy Project, located about 125 miles from Nova Scotia, on Friday, August 21. However, natural gas production was unaffected, as the facility went offline for maintenance on August 8. As of Tuesday, August 25, personnel had returned to the facility, which the storm did not appear to damage. The Sable Offshore Energy Project has a design capacity of about 400 million cubic feet (MMcf) per day.

Natural Gas Outlook: Prices Fall At All Locations, Storage Above Average

At the NYMEX, the prices for natural gas delivery contracts through October 2009 declined by roughly 19 cents per MMBtu, or about 6 percent, during the report week. However, price changes for the other contracts of the 12-month strip were mixed. Contracts for delivery in the months through January 2010 posted declines, while contracts for delivery in February through August 2010 posted increases of less than 6 cents per MMBtu. Overall, prices for the 12-month futures strip (September 2009 through August 2010) averaged $4.99 per MMBtu as of Wednesday, August 26, posting a decline of about 1 cent since last Wednesday. Prices for delivery in the remaining months of the 2009 injection season averaged $3.10 per MMBtu, while prices for delivery for the 2009-2010 heating season (November 2009 through March 2010) averaged $5.13 per MMBtu, producing a strong incentive to continue injections of natural gas into storage, despite robust inventories.

Storage

Working gas in storage increased to 3,258 Bcf as of Friday, August 21, according to EIA’s Weekly Natural Gas Storage Report (see Storage Figure). The implied net injection of 54 Bcf was 46 percent below last year’s net injection of 100 Bcf and 19 percent below the 5-year average (2004-2008) injection of 67 Bcf for the same report week. Working gas inventories are 516 Bcf higher than year-ago levels and 500 Bcf above the 5-year average level. Working gas in storage exceeds historical levels by significant margins for this time of year in each of the three regions, with inventories in the Producing region exceeding the 5-year average by 271 Bcf and last year’s levels by 306 Bcf.

Working gas stocks remain well ahead of historical levels. At 3,258 Bcf, working gas stocks are about 7 weeks ahead of the normal fill rate, exceeding the 5-year average (2004-2008) level of 3,242 Bcf for October 9. In the Producing region, working gas stocks are at a record-high for the 17-year history of the Weekly Natural Gas Storage Report. Prior to 2009, the all-time high storage level in the Producing region was 1,074 Bcf, reported for the week ending November 23, 2007. Working gas stocks in the West region were only 23 Bcf below the record-high of 478 Bcf reported for the week ending November 16, 2007. Finally, working gas inventories in the East region are 317 Bcf below the record high level of 2,041 Bcf reported for November 7, 2008. Working gas stocks appear likely to exceed the previous all-time record in the history of the weekly series of 3,565 Bcf reported in the Natural Gas Monthly at the end of October 2007.

Warmer-than-normal temperatures in most of the Census Divisions in the lower 48 States during the week ended August 20, 2009, likely contributed to the below-normal level of injections into storage. Based on the National Weather Service’s degree-day data, temperatures in the lower 48 States during the week were, on average, more than 2 degrees warmer than normal and 3 degrees warmer than last year’s levels (see Temperature Maps and Data). Temperatures were warmest in the West South Central Census Division, where the average temperature was 84 degrees. In contrast to the rest of the lower 48 States, temperatures in the Mountain and West North Central Census Divisions were cooler than normal.

Other Market Trends

MMS Reports Results of Offshore Gulf Lease Sale 210 and Onshore Utah Sale. The Minerals Management Service (MMS) announced on August 19 the total bids submitted for the Western Gulf of Mexico Lease Sale 210 and the Onshore Energy Sale in Utah. According to the report, the Western Gulf of Mexico Federal Oil and Gas Lease Sale attracted a total of $115 million in high bids. The sale was held in New Orleans and received 189 bids on 162 Federal Outer Continental Shelf tracts from 27 companies. BP Exploration and Production Inc. submitted the highest bid of over $28 million for Keathley Canyon, Block 96. The Western Gulf of Mexico Lease Sale 210 followed the Onshore Energy Sale in Utah, which is a quarterly sale that the Bureau of Land Management (BLM) conducts. This sale generated $1.1 million in winning bonus bids for Federal oil and gas lease rights. BLM sold 27 of the 37 parcels offered, totaling about 35,000 acres of Federal land. Douglas Chasel of Salt Lake City submitted the highest total bid of $925 per acre on parcel number 72. To date this year, the Department of Interior has offered 55 million acres of U.S. public land for oil and gas development, generating more than $875 million in revenues.

BLM Will Withhold Oil and Natural Gas Leases in Wyoming. The Bureau of Land Management (BLM) announced on Monday, August 24, that it would not accept pending bids on 23 oil and natural gas lease parcels totaling close to 24,000 acres in the Bridger Teton Nation Forest in Wyoming. This decision occurred in light of the Wyoming Range Legacy Act, which withdraws 1.2 million acres of public land in the Wyoming Range from future mineral leasing. President Barack Obama signed the legislation into law on March 30 as part of the Omnibus Public Land Management Act of 2009. Additionally, BLM cited a preliminary Interior Board of Land Appeals ruling on the sale of leases in its reasons for not accepting bids. In the same area, 31 oil and natural gas leases are currently suspended. More information about the leases, as well as the Wyoming Range Legacy Act, can be found at http://www.blm.gov/wy/st/en/info/news_room/2009/august/24legacy-act.html

Natural Gas Rig Count Rises for Fifth Consecutive Week. Horizontal Rigs Reach 5-Month High. The natural gas rotary rig count rose to 695 as of August 21, 2009, following a net increase of 7 rigs, according to data Baker Hughes Incorporated released. This increase marks the fifth week in a row that the natural gas rig count has risen. Currently, the number of natural gas rigs is 57 percent lower than its peak of 1,606 in late summer 2008. In general, the natural gas rotary rig count tends to lag movements in the Henry Hub price by several months. The Henry Hub price has fallen steeply from a high of $13.31 MMBtu (recorded on July 2, 2008) over the past several months, recently reaching below $3 per MMBtu. Although recent declines have not been as steep compared with summer and fall of 2008, current downward price movements could signal the potential for future declines in the rig count. Additionally, according to the Baker Hughes data, horizontal drilling rigs (including both oil and natural gas) rose by 7 to 428, their highest level since March 20, 2009. Over the past year, horizontal rigs have declined less steeply than vertical rigs, which rose this week by 13 to 386.

Natural Gas Transportation Update

* A variety of interstate pipeline companies have started reducing service flexibility, citing high storage injection activity despite high inventory levels. Tennessee Gas Pipeline Company on Wednesday, August 26, issued a system-wide alert notifying customers that their actual daily flow rate must not exceed 2 percent above scheduled quantities or 500 decatherms (Dths), whichever is greater. A penalty of $0.2198 per Dth in excess of these levels applies to physical quantities related to over-deliveries by receipt point operators and under-takes by delivery point operators. Similarly, Columbia Gas Transmission implemented tighter controls on Thursday, August 27, noting that a penalty of $5.00 per Dth applies to all volumes injected in excess of 110 percent of shippers’ maximum daily contractual quantities. Columbia Gas suspended services for customers with lower-priority or interruptible contracts.


* Texas Gas Transmission, LLC (TGT) is taking the newly-constructed Fayetteville Lateral in Arkansas and Greenville Lateral in Mississippi offline beginning September 1.
The pipeline company said that testing of pipe samples has revealed anomalies that will take approximately 3 months to repair. However, partial service may be restored on parts of the pipeline over the next 3 months, pending approval from the U.S. Department of Transportation’s Pipeline and Hazardous Materials Safety Administration (PHMSA). TGT expects to return the Greenville and Fayetteville Laterals to respective capacities of between 430,000 and 770,000 MMBtu per day and 550,000 and 750,000 MMBtu per day. The laterals serve growing production in the Fayetteville Shale in Arkansas.

* ANR Pipeline Company on Wednesday, August 26, said maintenance at its Bridgman Compressor Station in Michigan is complete and all associated restrictions have been lifted. The maintenance had reduced total St. John West-to-East capacity by 325 MMcf per day for Monday and Tuesday, which left 940 MMcf per day available for transportation.