Declines in natural gas spot prices at most market locations occurred 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, September 23, decreasing by as much as 51 cents per MMBtu, or 13 percent, this trading week. Factors contributing to the decline in natural gas prices likely included moderate weather-related demand for natural gas and plentiful supplies. Despite generally moderate temperatures, some markets reported incipient heating demand. The largest price declines generally occurred in Florida and East Texas markets, which posted declines of 51 and 50 cents per MMBtu, respectively. In contrast to the general pattern of declining prices throughout most of the lower 48 States, prices at market locations in northern California and several markets in the Rockies gained between 19 and 21 cents per MMBtu since last Wednesday.
Prices for natural gas at the Henry Hub continue to trade at significantly lower levels than last year at this time. At $3.24 per MMBtu in trading on September 30, prices were 55 percent, or $3.93 per MMBtu, below year-ago levels. Natural gas prices have consistently traded below year-prior levels since October 6, 2008. Despite weakness in the Henry Hubâs natural gas spot prices, the relatively robust price of the November futures contract suggests expectations that the market will tighten.
At the NYMEX, the prices for natural gas delivery contracts through October 2010 increased by roughly 20 cents per MMBtu, or about 4 percent, during the report week. The futures contract for October delivery expired in trading on September 28 at $3.73 per MMBtu, with the contract for November delivery becoming the near-month contract in trading the next day. The November contract traded at a premium of $1.10 per MMBtu to the October 2009 contract on its expiration date. Although the price of the new prompt-month contract generally trades within 5 percent of the price of the contract that just expired, the price of the November contract exceeded the October contract by 29 percent. The last time the difference between the expiring and incoming near-month contract exceeded 29 percent was on September 27, 2006. On the week, the price of the November contract increased 9 cents per MMBtu, or about 2 percent. The other remaining 11 contracts on the 12-month futures strip gained between 17 and 26 cents per MMBtu, or about 3 to 4 percent. Overall, prices for the 12-month futures strip (November 2009 through October 2010) averaged $5.93 per MMBtu as of Wednesday, September 30, climbing about 20 cents per MMBtu since last Wednesday. Prices for delivery for the 2009-2010 heating season (November 2009 through March 2010) averaged $5.68 per MMBtu.
Working gas in storage increased to 3,589 Bcf as of Friday, September 25, according to EIAâs Weekly Natural Gas Storage Report (see Storage Figure). The implied net injection of 64 Bcf was 18 Bcf, or 22 percent, below last yearâs net injection of 82 Bcf and 6 percent below the 5-year average (2004-2008) injection of 68 Bcf for the same report week. Working gas inventories are 491 Bcf higher than year-ago levels and 481 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.
Working gas stocks established new record levels in two of three regions, and on a national level. At 3,589 Bcf, working gas in storage set a new record high for natural gas inventories. Current inventories exceed the previous 15-year-high reported on the Weekly Natural Gas Storage Report (WNGSR) of 3,545 Bcf, and the all-time high of 3,565 Bcf reported in the October 2007 Natural Gas Monthly. New record levels were established in the West and Producing regions, exceeding the previous records of 482 Bcf and 1,126 Bcf in the WNGSR, respectively. Meanwhile, the East region is only 86 Bcf below its previous 15-year high level of 2,041 Bcf established on November 14, 2008.
Temperatures were generally mild and warmer than normal in most of the Census Divisions in the lower 48 States during the week ended September 24, 2009. Based on the National Weather Serviceâs degree-day data, temperatures in the lower 48 States during the week were, on average, about 4 degrees warmer than normal and 3 degrees warmer than last yearâs levels (see Temperature Maps and Data). Temperatures were warmest in the West South Central Census Division, where the average temperature was 74 degrees. In contrast to the rest of the lower 48 States, temperatures in the West South Central Census Division were cooler than normal temperatures.
Other Market Trends
EIA Releases September 2009 Natural Gas Monthly with July 2009 Data. On September 29, EIA released the Natural Gas Monthly (NGM), which includes data for supply, disposition, consumption, and imports and exports of natural gas through July 2009. According to the latest NGM, delivered volumes to industrial customers fell about 10 percent compared with July 2008 and decreased 11 percent compared with the 5-year average (2004-2008). These decreases in industrial deliveries are likely a result of the weakened economy and reduced industrial activity. Year-to-date, delivered volumes to industrial customers have fallen by about 19 percent, from 577 Bcf in January to 467 Bcf in July. In fact, industrial consumption has remained below the 5-year range throughout 2009 (see figure below). The 5-year range is the area between the minimum and maximum levels of industrial consumption over the past 5 years. At the same time, natural gas deliveries to electric power consumers totaled 762 Bcf in July 2009. This figure is almost 1 percent lower than July 2008 levels, but nearly 2 percent higher than the 5-year average for July. The NGM also indicated that marketed production of natural gas remains strong at about 1,854 Bcf for the month of July. Marketed production for July 2009 is less than 1 percent below July 2008 levels. Of the major natural gas producing States and the Gulf of Mexico, marketed production fell slightly year-over-year, with a notable exception in Louisiana. Marketed production in Louisiana rose more than 14 percent, from 118 Bcf in July 2008 to 135 Bcf in July 2009. Production in Louisiana has generally increased over the past year, likely as a result of expanded shale drilling in the State. Additionally, the NGM indicates that volumes of natural gas imported into the United States have dropped by 6 percent compared with 2008.
EIA Releases Second Quarter of 2009 Financial Reports for Energy Companies. Net income declined sharply at both major and independent energy companies in the second quarter of 2009, according to two EIA reports released on September 25. Total second quarter net income of the 18 oil and natural gas companies accounted for in the major energy company report totaled $10.4 billion, decreasing by 67 percent relative to the second quarter of 2008. Similarly, independent energy companies (entities that are typically smaller than the major companies and do not have integrated production and refining operations) posted total net income of $1.7 billion, registering a decline of 68 percent. Declines occurred across all business lines for both independent and major companies primarily as a result of sharp declines in oil and natural gas prices. Among the major oil companies, refining/marketing earnings were one of the hardest-hit business lines. Income derived from worldwide refining/marketing operations (which includes domestic and foreign companies) fell 86 percent to about $500 million. Foreign refining/marketing operations recorded a small increase in the second quarter despite the substantial year-over-year loss. However, domestic refining/marketing operations registered a loss of $72 million in the second quarter. Among the 37 independent companies analyzed, oil and gas producers, as well as refiners, reported the steepest losses. Information about major companies is available at http://www.eia.doe.gov/emeu/perfpro/news_m/index.html?featureclicked=2&; and information about independent companies can be accessed at: http://www.eia.doe.gov/emeu/perfpro/news_i/index.html?featureclicked=4&
EIA Releases a Report on Natural Gas Pipeline Expansion. In a report released on September 30 entitled Expansion of the U.S. Natural Gas Pipeline Network: Additions in 2008 and Projects through 2011, EIA found that there were more pipelines constructed and new capacity additions in 2008 than there had been in more than 10 years. The report provides an overview of capacity additions to the U.S. natural gas pipeline system during 2008 and upcoming natural gas pipeline projects that may be developed between 2009 and 2011. Overall, 84 pipeline projects in the lower 48 States were completed in 2008. These projects added 4,000 miles of natural gas pipeline, more than double the 1,663 miles of pipeline added in 2007. The projects completed in 2008 added 44.6 Bcf per day of capacity to the pipeline grid, costing an estimated $11.4 billion. Sixty-five of the 84 completed projects involved expansion of the interstate natural gas pipelines network, adding 35.2 Bcf per day to the grid. In terms of added miles, the largest natural gas pipeline project completed in 2008 was the 718-mile Rockies Express West (REX-West) Pipeline system, which transports natural gas between the Cheyenne Hub in northeastern Colorado and eastern Missouri. This pipeline links expanding natural gas production from Wyoming and western Colorado to the Midwest region. Infrastructure additions related to imports of natural gas, including LNG, were also substantial in 2008. The report further notes that pipeline infrastructure expansion activity in the lower 48 States likely will remain elevated through 2011. Domestic production forecasts, specifically production from unconventional sources, continue to show gains in the long-term, spurring pipeline expansions.
EPA Proposes New Emissions Rule. The Environmental Protection Agency (EPA) has announced a proposed rule that will require large industrial facilities emitting more than 25,000 tons of greenhouse gases (GHGs) per year to obtain construction and operating permits to cover emissions. The permits must demonstrate that the industrial facilities are using the best available control technologies and efficiency measures to minimize their emissions when facilities are constructed or significantly modified. The proposed rule addresses emissions under the Clean Air Act. The rule would cover sectors responsible for about 70 percent of GHG emissions, such as power plants, refineries, factories, and farms. The regulations would not apply to small businesses and restaurants. The proposed rule would address emissions of carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride. EPA estimated that the proposed rule would subject about 400 new sources and modifications to permits regulating emissions. In total, 14,000 large emitters would need to obtain operating permits for emissions. EPA will accept comments on the proposed rule for 60 days after publication in the Federal Register. More information about the proposed rule can be found here: http://www.epa.gov/nsr/fs20090930action.html
Natural Gas Transportation Update
Southern Natural Gas Company on Monday, September 27, ended a series of restrictions that had been in place during the weekend because of high storage inventories and limited injection capability. The Operational Flow Order (OFO) required proper balancing of nominations into and deliveries out of the pipeline system. The OFO also implemented tiered penalties for imbalances exceeding 2 percent, or 200 thousand cubic feet (Mcf) per day, whichever was greater.
The Williams Companies, Inc., on September 29, reported that the new Willow Creek natural gas processing plant in western Colorado's Piceance Basin has reached full processing operations. The plant, located in Rio Blanco County, Colorado, receives natural gas volumes from Williamsâ Parachute Lateral, a 30-inch diameter gathering pipeline in the Piceance. The company noted that after processing at Willow Creek, the Parachute Lateral then delivers the natural gas north to the Greasewood and White River Hubs. The plant has the capacity to process 450 million cubic feet (MMcf) per day.
Natural Gas Pipeline of America Company this week announced it will shut down Compressor Station 201 in Kankakee County, Illinois, for maintenance beginning October 14. The maintenance, which was originally scheduled to start September 29, will continue for about a week. During this period, the Midwestern/NGPL Herscher Kankakee point will be unavailable, according to the company.
Nautilus Pipeline Company, LLC, on Friday, September 25, reported that it had returned to full operations after a short outage caused by a lightning strike the prior Wednesday. The strike occurred at the Neptune Processing Plant in St. Mary Parish, Louisiana, forcing the pipeline to shut down many meters and limit deliveries to the downstream pipes.
Transcontinental Gas Pipe Line Company, LLC, reported the completion of modifications to the Southeast Louisiana Lateral in Vermillion Parish and surrounding areas. As a result, the pipeline company accepted lateral nominations starting Sunday, September 26. The modifications had restricted access to meters receiving about 200 MMcf per day before the repairs.