NuEnergen Weekly Natural Gas Report (For the Week Ending Wednesday, August 10, 2011)

• Natural gas prices fell across the board this week, likely in response to cooling temperatures as well as weak economic news. The Henry Hub spot price fell 17 cents from $4.26 per million Btu (MMBtu) last Wednesday, August 3, to $4.09 per MMBtu yesterday, August 10.
• At the New York Mercantile Exchange, the price of the near-month contract (September 2011) fell by $0.087 per MMBtu, from $4.090 last Wednesday to $4.003 yesterday.
• Working natural gas in storage was 2,783 Bcf as of Friday, August 4, according to EIA’s Weekly Natural Gas Storage Report (WNGSR).
• The natural gas rotary rig count, as reported by Baker Hughes Incorporated, increased by 6 to 883 as of Friday, August 5.

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Prices

Spot prices fell this report week at most trading locations across the country, with the largest drops occurring on August 5. The Henry Hub spot price averaged $4 per MMBtu on Friday, August 5, its lowest level since March 21, 2011. In addition to cooler weather, a bearish storage report on Thursday, August 4, may also have put downward pressure on natural gas prices. Northeast prices fell somewhat during the week (generally between 10 and 25 cents), having backed off from extreme heat in previous weeks that led to double digit price spikes. At Transcontinental Pipeline’s Zone 6 pricing point for delivery into New York City, prices dropped during the report week from $4.62 per MMBtu last Wednesday to $4.41 yesterday.

The decline in temperatures this week led to decreases in consumption of natural gas for power generation. Power burn fell almost 4 percent week over week, according to data from Bentek Energy Services, LLC. Supply also fell slightly during the week, as robust production was offset by declines in Canadian imports. Dry production increased 0.6 percent from the previous week, while Canadian imports fell 8.1 percent. Though increasing about 1 percent from the previous week, LNG imports averaged only about 450 million cubic feet (MMcf) per day this week. Increases in domestic supply have reduced the need for imports, while higher prices globally have diverted LNG cargoes away from the United States.
At the New York Mercantile Exchange, the price of the near-month contract (September 2011) fell by $0.087 per MMBtu to settle at $4.003 per MMBtu yesterday. Wednesday’s settlement price was a slight rebound from earlier in the report week; the previous four trading days the price was below $4 per MMBtu. The price of the 12-month strip (the average of the 12 contracts between September 2011 and August 2012) fell less than 1 percent on the week, from $4.409 per MMBtu last Wednesday to $4.371 per MMBtu yesterday.

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Storage

Working natural gas in storage was 2,783 Bcf as of Friday, August 4, according to EIA’s WNGSR(see Storage Figure) . This represents an implied net injection of 25 Bcf from the previous week. This week’s build is 12 Bcf below the five-year average of 37 bcf; this marks the fifth consecutive week of below-average builds. During the comparable week last year, inventories increased 36 Bcf. The relatively low inventory build this week was likely due to increased demand for natural gas for power generation during an exceptionally hot week.
The Producing Region registered a net withdrawal for the fourth consecutive week. The Producing Region’s five-year average change for this week is a withdrawal of 5 Bcf; this week’s 21 Bcf draw was far above the average. Areas in the Producing Region, specifically Texas, experienced record high temperatures in July, and power burn was above normal in July and into the beginning of August.
Temperatures during the week ending Thursday, August 4, averaged 79.3 degrees, about 4 degrees warmer than normal. The hottest area of the country during the week was the West South Central, which includes Texas, Louisiana, Arkansas, and Oklahoma. Temperatures averaged 88.9 degrees, 5.9 degrees greater than the 30 year normal(see Temperature Maps and Data). Temperatures were above average in all Census divisions, and above last year’s temperatures in all but the East South Central.

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Other Market Trends

NOAA Declares Last Month Was Officially Hot. With a nationwide average temperature of 77 degrees, last month was the fourth hottest July on record, the National Atmospheric and Oceanic Administration (NOAA) said on August 8. The long-term (1901-2000) average temperature for July is 74.3. Oklahoma and Texas, according to NOAA, had their hottest months on record, with temperatures averaging 88.9 and 87.1 degrees, respectively. According to NOAA, 41 of the lower 48 States experienced warmer than normal temperatures; States spared from the heat were all west of the Rockies. The extreme heat led to greater than normal consumption of natural gas for electric power generation. In fact, consumption of natural gas for power generation averaged 6.03 Bcf per day in Texas, the second highest monthly level of power burn in the years for which Bentek has data (2005-2011). Power burn in the lower 48 States averaged 28.57 Bcf per day, also close to record levels and well above the five-year (2006-2010) July average of 25.99 Bcf per day, according to Bentek data. The heat in July also led the Short-Term Energy Outlook to increase its forecast for consumption of natural gas for electric power generation in 2011.
EIA Projects Strong Supply Growth in 2011. EIA released its Short-Term Energy Outlook this week, which projects marketed production of 65.5 Bcf per day in 2011, a 5.9 percent increase over 2010. Production continues to grow in 2012, but at a slower pace, average 66.1Bcf per day. Growth occurs mainly in onshore areas, offsetting projected declines in the Gulf of Mexico. The growth in production reduces the need for imports; the STEO projects pipeline imports will fall 4.3 percent to 8.7 Bcf per day during 2011 and by another 3.7 percent to 8.4 Bcf per day in 2012. LNG imports are projected to decline to just 1.0 Bcf per day in 2011 and 2012, as higher global prices attract LNG away from the United States. Pipeline exports, on the other hand, are expected to average 4.3 Bcf per day in 2011 and 2012, compared with 3.1 Bcf per day in 2010.

NuEnergen Weekly Natural Gas Report (For the Week Ending Wednesday, August 03, 2011)

• Nearly all pricing points were down modestly for the week following passage of the heat wave that had earlier gripped most of the country. The Henry Hub price decreased 20 cents per million Btu (MMBtu) over the week (down 4.5 percent) to close at $4.26 per MMBtu on August 3.
• At the New York Mercantile Exchange (NYMEX), the downward price response was somewhat more pronounced (down 5.3 percent) with the September 2011 natural gas contract losing ground over the week, closing at $4.090 per MMBtu on Wednesday.
• Working natural gas in storage rose last week to 2,758 billion cubic feet (Bcf) as of Friday, July 29, according to the U.S. Energy Information Administration’s (EIA) Weekly Natural Gas Storage Report (WNGSR). The implied increase for the week was 44 Bcf, leaving storage volumes positioned 186 Bcf under year-ago levels.
• The natural gas rotary rig count, as reported July 29 by Baker Hughes Incorporated, fell by 12 to 877 active units. Meanwhile, oil-directed rigs were up 4 to 1,025 units, expanding the diversion between the two drilling strategies.

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Prices

At the NYMEX, the price of the September 2011 contract mirrored the price response of other market points and decreased 22.8 cents (5.3 percent) over the week from $4.318 per MMBtu last Wednesday to $4.090 per MMBtu yesterday. Since last Wednesday, expectations of cooler temperatures with the attendant diminished cooling load has likely been the chief catalyst propelling futures to a string of losses accounting for the decrease.

The Henry Hub price echoed the week’s general price decline by falling 4.5 percent from $4.46 per MMBtu during the week to close at $4.26 per MMBtu yesterday. As the accompanying table shows, the Henry Hub cash price began its descent starting last Wednesday with price losses totaling 20 cents during the midst of the cool down.
End-market natural gas prices generally followed the lead of their wholesale counterparts and responded to moderating temperatures with similar losses. The New York citygate, which started the week at $4.93 per MMBtu (following a dramatic price spike the previous week), lost ground every day of the week except one. The New York citygate decreased by $0.31 per MMBtu over the period (Wednesday to Wednesday) to close at $4.62 per MMBtu (down 6.3 percent). During the same period, the Chicago citygate fell a more mundane $0.19 per MMBtu and ended the week at $4.32 per MMBtu (down 4.2 percent).
Spurred by the easing heat trend, consumption registered a modest decrease. According to estimates from BENTEK Energy Services, LLC, domestic gas consumption decreased this week by 1.3 percent over last week. The power sector led the decline with a loss of 1.4 percent, mostly reflective of a reduction in cooling load for air conditioning. Likewise, the residential/commercial sector also posted a loss. However, running counter to the overall consumption downtrend, the industrial sector rose 0.4 percent.
In the midst of the generally softening price environment, overall supply was down slightly. According to BENTEK Energy estimates, the week’s average total nominal gas supply posted a 0.8 percent decrease from last week’s level. Domestic weekly dry gas production hovered around 61 Bcf per day (up 0.2 percent) from the previous week despite Tropical Storm Don which briefly skirted the Offshore Gulf of Mexico and caused a small amount of production to be shut-in. Domestic dry gas production now stands 6.5 percent above this time last year. The week’s slight production gain was offset somewhat by a 7.9 percent decrease in Canadian imports which averaged 6.7 Bcf per day. Canadian imports remain 7.3 percent below year-ago volumes. Supply again abated for liquefied natural gas (LNG) where imports slid to just over 0.4 Bcf per day during the week, and remain 44.0 percent below year-ago levels.

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Storage

Working natural gas in storage rose to 2,758 Bcf as of Friday, July 29, according to EIA’s WNGSR (see Storage Figure). After a 44 Bcf net build, stocks are now 68 Bcf below the 5-year average and 186 Bcf below last year. The build was less than the 5-year average build of 47 Bcf, making this the fourth consecutive week of below average builds. Last year saw a net stock build of just 29 Bcf during the same week.
The Producing Region registered its third week in a row with a net draw. While draws during hot summer weather occur, they are not typical. The region remains 69 Bcf above the 5-year average due to a string of larger than normal builds earlier in the year.
Temperatures in the lower 48 States during the week ending July 28 were warmer than normal for the fourth week in a row and warmer than last year. The National Weather Service’s degree-day data show that the temperature in the lower 48 States last week averaged 79.4 degrees, 4.0 degrees warmer than normal, and 1.1 degrees warmer than last year (see Temperature Maps and Data). All regional temperatures were above normal levels with the exception of the Pacific region for the third week in a row. Cooling degree-days were about 35 percent above normal.

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Other Market Trends

EIA Releases Natural Gas Data for May 2011. EIA released the July 2011 Natural Gas Monthly this week, with data through May 2011. Total natural gas consumption averaged 53.5 Bcf per day in May, a decline of about 12 percent from April. Residential and commercial consumption dropped from April as temperatures warmed up. These declines were partially offset by an increase in consumption of natural gas for power generation as warmer temperatures necessitated increased electricity use for cooling. Despite the month-to-month decrease in consumption, natural gas wellhead prices increased in May to $4.01 per MMBtu, an increase of about 14 cents from the previous month. Pipeline exports to Mexico fell slightly, from 1.43 Bcf per day in April to 1.41 Bcf per day in May, but still remain at historically high levels as abundant production in the United States has been serving gas demand in Mexico.
Natural Gas Rig Count Falls to 877. The natural gas rotary rig count, as reported on July 29 by Baker Hughes Incorporated, fell by 12 to 877. For the past few months, the natural gas rig count has oscillated in the high-800s. The natural gas rig count is down 5 percent from the beginning of 2011, and 10 percent from the same time last year. On the other hand, the oil rig count has risen for 15 consecutive weeks, likely in response to this year’s increase in oil prices, and at 1,025 is currently at its highest level for the 24 years for which Baker Hughes reports data. The rise in oil rigs could bring with it additional associated natural gas production. The horizontal rig count (including both oil and natural gas rigs) fell this week from a record-high level of 1,102 to 1,080, and remains close to historically high levels despite the drop of 22 rigs. Vertical rigs rose by 12 to 582, and directional rigs rose by 2 to 246.

NuEnergen Weekly Natural Gas Report (For the Week Ending Wednesday, July 27, 2011)

• As last week’s Eastern heat wave subsided, natural gas prices declined at market locations across the lower 48 States. The spot price at the Henry Hub decreased 18 cents from $4.64 per million Btu (MMBtu) last Wednesday, July 20, to $4.46 per MMBtu yesterday, July 27.
• At the New York Mercantile Exchange, the price of the near-month futures contract (August 2011) decreased from $4.500 per MMBtu to $4.370 per MMBtu.
• Working natural gas in storage rose to 2,714 billion cubic feet (Bcf) as of Friday, July 22, according to EIA’s Weekly Natural Gas Storage Report (WNGSR).
• The natural gas rotary rig count, as reported by Baker Hughes Incorporated on July 22, increased by 4 for the week to 889.

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Prices

Although natural gas prices fell at most points across the country, likely as a result of a general lessening of the previous week’s heat dome, the Northeast saw significant price spikes during the week. The prime example is Transcontinental Pipeline’s Zone 6 point for delivery into New York City, where temperatures near 100 caused prices to spike to $14.50 on Thursday, July 21. By Monday, July 25, they had retreated to $5.00 per MMBTU and closed the week out yesterday at $4.93 per MMBTU, down for the week.
Pipeline imports from Canada continued their increase of the previous week to help meet increased demand for natural gas during the week, primarily for power generation. Canadian imports to the United States increased by 7.0 percent, according to data from Bentek Energy Services, LLC. The Northeast and the Midwest saw the largest increase of Canada imports of the three regions tracked by Bentek, increasing by 12.1 and 10.7 percent, respectively. Canadian imports into the West increased a modest 0.4%.
Overall consumption of natural gas for electric power increased by 12.3 percent from the previous week. According to Bentek, natural gas consumption across the United States increased by 7.0 percent on the week, with most of the increase being for power generation, especially in the early part of the week. Natural gas consumed for power generation was close to 35 Bcf for Thursday and Friday, and then fell to levels closer to the 30 Bcf range for the remainder of the report week. Supply rose about 0.3 percent on the week, according to Bentek data. Domestic dry gas production fell slightly by 0.7 percent, and remained in the 59 to 61 Bcf range over the week. (Note that Bentek is now reporting dry gas rather than marketed production.)

At the New York Mercantile Exchange, the price of the near-month futures contract (August 2011) decreased from $4.500 per MMBtu to $4.370 per MMBtu. Similarly, the price of the 12-month strip (the average of all contracts between August 2011 and July 2012) declined to $4.558 per MMBTU, from $4.694 per MMBtu the previous Wednesday.

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Storage

Working natural gas in storage rose to 2,714 Bcf as of Friday, July 22, according to EIA’s WNGSR (see Storage Figure). After a 43 Bcf net build, stocks are now 65 Bcf below the 5-year average and 201 Bcf below last year. The build was less than the 5-year average build of 49 Bcf, making this the third consecutive week of below average builds. Last year saw a stock build of just 31 Bcf during the same week.
The Producing Region registered its second week in a row with a net draw. While draws during hot summer weather occur, they are not typical. With this draw, the Producing Region has now fallen below last year’s levels for the first time this year. The region remains 75 Bcf above the 5-year average.
Temperatures in the lower 48 States during the week ending July 21 were warmer than normal for the third week in a row but slightly colder than last year. The National Weather Service’s degree-day data show that the temperature in the lower 48 States last week averaged 78.9 degrees, 3.1 degrees warmer than normal, but 0.4 degrees cooler than last year (see Temperature Maps and Data). All regional temperatures were above normal levels with the exception of the Pacific region for the second week in a row. Cooling degree-days were about 28 percent above normal.

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Other Market Trends

Ruby Pipeline Set to Open this Week. Following approval to begin service from the Federal Energy Regulatory Commission (FERC) on Wednesday, El Paso Corporation’s Ruby Pipeline has accepted nominations and is expected to deliver gas to the Malin Hub in Oregon today. The 680-mile, 1.5 Bcf per day capacity pipeline will run from Opal, Wyoming, to Malin, Oregon. The pipeline encountered cost overruns and permitting delays, totaling about $590 million, bringing the total cost of the pipeline up to about $3.6 billion. Last week, FERC approved tariff changes to account for these costs, as well as lower expected initial throughput, according to trade press reports. Though the pipeline will send additional Rockies gas to the West coast, recent analysis by Bentek suggests that the pipeline will compete with Western Canadian gas coming into the United States via the Gas Transmission Northwest Pipeline, which begins at the British Columbia-Idaho border and terminates at the Oregon-California border. Both Rockies gas and Canada gas will compete for space on the Redwood Path pipeline, which moves gas into Northern California and will be operating about 400 million cubic feet (MMcf) per day below its capacity through December due to pressure testing.
Bentek Energy Implements Changes to Daily Supply/Demand Data. Bentek Energy, a data and analysis source used by EIA for input into the Natural Gas Weekly Update, as well as other products, has recently implemented several changes to its daily data. Some of
Bentek’s changes, which affect data reported in the Natural Gas Weekly Update, include:

Production data in the NGWU refer to dry production, rather than marketed.

Residential and commercial consumption no longer includes a balancing item, which has been pulled out into a separate category.

Bentek’s industrial consumption model has been improved to reduce high daily volatility not reflective of actual consumption patterns.

NuEnergen Weekly Natural Gas Report (For the Week Ending Wednesday, July 20, 2011)

• Responding to extremely hot weather this week, natural gas prices moved up at market locations across the lower 48 States. The spot price at the Henry Hub increased 21 cents from $4.43 per million Btu (MMBtu) last Wednesday, July 13, to $4.64 per MMBtu yesterday, July 20.
• At the New York Mercantile Exchange, the price of the near-month futures contract (August 2011) increased from $4.403 per MMBtu to $4.500 per MMBtu.
• Working natural gas in storage rose to 2,671 billion cubic feet (Bcf) as of Friday, July 15, according to EIA’s Weekly Natural Gas Storage Report (WNGSR).
• The natural gas rotary rig count, as reported by Baker Hughes Incorporated on July 15, rose by 12 to 885 (see Other Market Trends).

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Prices

Natural gas prices responded as a “heat dome” spread across much of the United States, bringing temperatures into the triple digits in many areas. In the Northeast, for example, average natural gas prices spiked to $9.13 per MMBtu at Transcontinental Pipeline’s Zone 6 point for delivery into New York City. The price from the previous Wednesday ($4.76 per MMBtu) nearly doubled. The largest price increases came at the end of the report week, as temperatures rose from hot to hotter. Price increases were somewhat more muted in other regions of the country, with the Henry Hub price rising 21 cents to end the report week at $4.64 per MMBtu.
Though the Pacific Northwest was an exception to the heat dome, prices remained relatively strong. Prices at the Northwest Sumas trading point, for example, rose about 23 cents on the week to $4.24 per MMBtu. Consumption of natural gas for power generation in the area remained very low, according to Bentek Energy Services, LLC, as continued strength in hydroelectric power generation has displaced the use of natural gas. El Paso Corp.’s Ruby Pipeline, which will bring gas from the Rockies to the Pacific Northwest, will open on July 27.
Pipeline imports from Canada helped to meet additional demand for natural gas for power generation this week. Canadian imports to the United States increased by 4.5 percent, according to data from Bentek. The Northeast saw the largest increase of the three regions tracked by Bentek, as imports rose by 5.7 percent, up to 1.7 Bcf on Wednesday. Northeast power burn rose to almost 8.5 Bcf on Wednesday (compared to 7.3 Bcf on Monday), and Bentek data indicate even higher power burn in the Northeast today.
Overall consumption of natural gas for electric power rose only 1.1 percent from the previous week, which was also hot, but like prices, power consumption spiked during the end of the report week. According to Bentek, natural gas consumed for power generation was above 30 Bcf for Tuesday and Wednesday, compared to a level closer to 25 Bcf during the beginning of the report week. Consumption overall rose about 3 percent on the week, and supply rose about 0.6 percent, according to Bentek data. Domestic production increased slightly by .2 percent, and topped 65 Bcf on Tuesday.

At the New York Mercantile Exchange, the price of the near-month futures contract (August 2011) increased from $4.403 per MMBtu to $4.500 per MMBtu. Similarly, the price of the 12-month strip (the average of all contracts between August 2011 and July 2012) rose slightly to $4.694 per MMBtu, from $4.663 per MMBtu the previous Wednesday.

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Storage

Working natural gas in storage rose to 2,671 Bcf as of Friday, July 15, according to EIA’s WNGSR (see Storage Figure). After a 60 Bcf net build, stocks are now 59 Bcf below the 5-year average and 213 Bcf below last year. The build was less than the 5-year average build of 67 Bcf, making this the second consecutive week of below average builds. Last year saw a stock build of just 55 Bcf during the same week.
The Producing Region stands out this week for registering a 6 Bcf net draw. While draws during hot summer weather occur, they are not typical. The Producing Region remains the only region with storage levels above both the 5-year average and last year, though the latter difference has fallen to just 4 Bcf.
Temperatures in the lower 48 States during the week ending July 14 were warmer than normal but slightly colder than last year. The National Weather Service’s degree-day data show that the temperature in the lower 48 States last week averaged 77.1 degrees, 2.9 degrees warmer than normal, and 2.3 degrees warmer than last year (see Temperature Maps and Data). All regional temperatures were above normal levels with the exception of the Pacific region. Cooling degree-days were about 19 percent above normal.

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Other Market Trends

Natural Gas Rig Count Up to 875. The natural gas rotary rig count rose by 12 to 875, according to data released on Friday, July 15 by Baker Hughes Incorporated.The number of natural gas rigs has been oscillating in the high 800s for several months, and this week’s increase is the largest since the end of May. Year-to-date, the natural gas rig count has dropped 4 percent. From the same week last year, rigs have fallen 10 percent. Oil-directed drilling rigs, on the other hand, have grown at a relatively high rate over the past two years, and have continued to rise to levels unseen in the 24 years for which Baker Hughes has data. This week, oil rigs rose to 1,013, their highest recorded level thus far. The growth in oil-directed rigs is likely a response to recent rises in oil prices, and additional oil drilling could bring additional associated natural gas production.
Exports to Mexico Continue to Grow. Pipeline exports of natural gas to Mexico have increased substantially in 2011, likely a result of the combination of supply issues affecting Mexico and record-high production in the United States. In April, U.S. pipeline exports to Mexico hit 42.8 Bcf, or 1.43 Bcf per day, the highest recorded level for EIA data going back to 1973. Pipeline exports to Mexico for the first 4 months of 2011 are 77 percent greater than they were for the same period of 2010. According to recent trade press and analyst reports, demand for natural gas for power generation has driven growth in gas demand in Mexico. Petróleos Mexicanos (PEMEX), Mexico’s state-owned energy company, has reported steep declines in non-associated natural gas production (which makes up about 40 percent of total gas production) for the first few months of 2011. Bentek Energy, which reports data based on pipeline flows, has reported continued strength to date in exports to Mexico.

NuEnergen Weekly Natural Gas Report (For the Week Ending Wednesday, July 13, 2011)

• Nearly all pricing points were up somewhat for the week on a heat wave that affected nearly half the country’s population according to national news reports. Despite the record heat, the Henry Hub price increased a modest 9 cents per million Btu (MMBtu) over the week (2.0 percent) to close at $4.43 per MMBtu on July 13.
• At the New York Mercantile Exchange (NYMEX), the price response was more robust (up 4.4 percent) with the August 2011 natural gas contract price gaining ground over the week, closing at $4.403 per MMBtu on Wednesday.
• Working natural gas in storage rose last week to 2,611 billion cubic feet (Bcf) as of Friday, July 8, according to the U.S. Energy Information Administration’s (EIA) Weekly Natural Gas Storage Report (WNGSR). The implied increase for the week was 84 Bcf, leaving storage volumes positioned 218 Bcf under year-ago levels.
• The natural gas rotary rig count, as reported July 8 by Baker Hughes Incorporated, fell by 1 to 873 active units. Meanwhile, oil-directed rigs were up 1 to 1,007 units, essentially maintaining and slightly expanding the diversion between the two drilling objectives.

More Summary Data

Prices

At the NYMEX, the price of the August 2011 contract reflected one of the strongest price responses relative to gas pricing points and increased 18.6 cents (4.4 percent) over the week from $4.217 per MMBtu last Wednesday to $4.403 per MMBtu yesterday. Since last Thursday, expectations of higher temperatures with rising cooling load has likely been the chief catalyst propelling futures to a string of four consecutive days of price gains accounting for the bulk of the week’s price increase.

The Henry Hub price echoed the week’s general price rise by increasing 2.0 percent from $4.34 per MMBtu during the week to close at $4.43 per MMBtu yesterday. As the accompanying table shows, the Henry Hub cash price began its ascent on Friday with four straight days of price gains totaling 24 cents during the midst of the heat build.
End-market natural gas prices generally followed the lead of their wholesale counterparts and responded to the heat, but with more muted gains. The New York citygate temporarily spiked up 83 cents (18.4 percent) between Friday and Monday when the heat wave first materialized. However, the Northeast heat spike proved to be short-lived and prices started retreating beginning on Tuesday. Despite the temporary price spike, the New York citygate actually decreased by $0.04 per MMBtu over the week (Wednesday to Wednesday) to close at $4.76 per MMBtu. Correspondingly, during the same time period, the Chicago citygate increased a more mundane $0.12 per MMBtu and ended the week at $4.49 per MMBtu (up 2.2 percent).
Spurred by the heat wave, consumption registered a sound increase. According to estimates from BENTEK Energy Services, LLC, domestic gas consumption increased this week by 5.1 percent over last week. The power sector led the increase on an absolute and percentage basis for a gain of 8.5 percent. Likewise, the residential/commercial sector also registered a gain. However, running counter to the consumption uptrend, the industrial sector fell 1.1 percent.
Amid the generally ascending price environment, overall supply was mixed and down slightly. According to BENTEK Energy estimates, the week’s average total nominal gas supply posted a 0.3 percent decrease from last week’s level. Domestic weekly gas production averaged slightly over 64 Bcf per day, down 0.4 percent from the previous week. Production held above 64 Bcf per day on all but two days of the week. Domestic production now stands 5.3 percent above this time last year. The week’s slight production drop was offset somewhat by a 1.1 percent increase in Canadian imports averaging 6.5 Bcf per day. Canadian imports remain 11.1 percent below year-ago volumes. Supply again abated for liquefied natural gas (LNG) where imports slid to just under 0.4 Bcf per day during the week, and remain 62.8 percent below year-ago levels.

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Storage

Working natural gas in storage rose to 2,611 Bcf as of Friday, July 8, according to EIA’s WNGSR (see Storage Figure). After an 84 Bcf net build, stocks are now 52 Bcf below the 5-year average and 218 Bcf below last year. The build was less than the 5-year average build of 88 Bcf ending three consecutive weeks of above average builds. Last year saw a stock build of just 78 Bcf during the same week.
Stocks last week grew at an above average pace in the East and West Regions while the Producing Region lagged behind. While stocks in the East and West regions remain well below the 5-year average levels, the gap has been narrowing for the past four weeks in the East and the past five weeks in the West. The Producing Region, which has seen mostly larger than average builds in 2011, has recently had relatively small builds. It remains well above average stock levels for this time of year.
Temperatures in the lower 48 States during the week ending July 7 were warmer than normal and warmer than last year. The National Weather Service’s degree-day data show that the temperature in the lower 48 States last week averaged 77.1 degrees, 2.9 degrees warmer than normal, and 2.3 degrees warmer than last year (see Temperature Maps and Data) Temperature Maps and Data). This marks the highest average temperature so far this year. All regional temperatures were above normal levels, and all regions outside the Northeast were warmer than last year. Cooling degree-days were about 26 percent above normal.

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Other Market Trends

LNG Sendout at Lowest Levels in Years. According to data from BENTEK Energy, LNG sendout from U.S. import terminals is at its lowest level in the more than 6 years for which BENTEK has data. Month to date, LNG sendout has averaged 380 million cubic feet (MMcf) per day, more than 50 percent lower than the level for June 2011. Between 2005 and 2010, July sendout has averaged 1.6 Bcf per day, partially driven upward by a very high sendout of almost 3 Bcf per day in July 2007. Year-to-date, sendout has averaged 867.2 MMcf per day. Currently, most imports to the United States arrive at the Suez Energy North America's Everett LNG terminal in Everett, Massachusetts and at El Paso Corp.'s Elba Island LNG terminal in Elba Island, Georgia. Both of these facilities have long-term contracts. LNG imports in the United States have been at historically low levels as a result of much higher prices for spot LNG elsewhere in the world, specifically in Asian and European markets. In recent months, nuclear power outages resulting from the March earthquake and tsunami in Japan have led the country to rely more on LNG, which has contributed to higher global LNG prices. Additionally, recent growth in production in the United States also has reduced domestic natural gas prices and the need for imports.
Short-Term Energy Outlook calls for strong production in 2011. EIA released its Short-Term Energy Outlook (STEO) on July 12, with forecasts through 2012. In this month’s STEO EIA expects marketed production of natural gas will average 65.4 Bcf per day in 2011, an increase of almost 6 percent over the previous year. Growth continues in 2012, but at a much slower pace, with forecast marketed production of 66.0 Bcf per day. Consumption in 2011 is expected to grow 2 percent to 67.4 Bcf per day, with industrial and electric power consumption increasing to 18.7 Bcf per day and 20.6 Bcf per day, respectively. This month EIA expects that inventories of working natural gas in storage, which are currently below last year’s levels and the five-year average, will come close to last year’s levels at the end of the injection season. Henry Hub prices average an estimated $4.27 per MMBtu in 2011, and are expected to rise to an average of $4.54 per MMBtu in 2012, as slowing growth in production contributes to tighter domestic natural gas markets.

NuEnergen Weekly Natural Gas Report (For the Week Ending Wednesday, July 6, 2011)

• Nearly all pricing points were down overall for the week, some by more than 10 cents per million Btu (MMBtu). The Henry Hub price decreased 6 cents per MMBtu over the week (1.4 percent) to close at $4.34 per MMBtu on July 6.
• Working natural gas in storage rose last week to 2,527 billion cubic feet (Bcf) as of Friday, July 1, according to the U.S. Energy Information Administration’s (EIA) Weekly Natural Gas Storage Report (WNGSR). The implied increase for the week was 95 Bcf, leaving storage volumes positioned 224 Bcf under year-ago levels.
• At the New York Mercantile Exchange (NYMEX), the August 2011 natural gas contract price also lost ground over the week, closing at $4.217 per MMBtu on Wednesday.
• The natural gas rotary rig count, as reported July 1 by Baker Hughes Incorporated, rose by 1 over the week to 874 active units, with oil rigs increasing by 3 to 1006. Compared with the same time last year, gas-directed rigs are down by 9 percent, while oil-directed rigs are up 71 percent.

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Prices

At the NYMEX, the price of the August 2011 contract decreased 9.8 cents (2.3 percent) over the week, from $4.315 per MMBtu last Wednesday to $4.217 per MMBtu yesterday. The contract fluctuated throughout the week but saw a significant decrease at the end of the week, dropping 14.6 cents (3.3 percent) between Tuesday and Wednesday, likely as a result of a cold front moving south from Canada that has begun driving temperatures downward in portions of the Northeast and Midwest. Nearly all pricing points experienced a decline on Wednesday.

The Henry Hub price decreased 6 cents per MMBtu (1.4 percent) during the week to close at $4.34 per MMBtu yesterday. As with the August 2011 NYMEX contract, the price displayed considerable fluctuation over the week.
End-market natural gas prices mirrored wholesale prices and generally declined over the week. An exception was the New York citygate price which increased 3 cents over the week, closing at $4.80 per MMBtu. The Chicago citygate price dropped 10 cents, closing at $4.37 per MMBtu.
Demand fluctuated considerably during the week. According to estimates from BENTEK Energy Services, LLC, consumption fell 5.5 percent between Thursday, June 30 and Sunday, July 3, only to spike upwards 9.2 percent between Sunday and Tuesday before dropping back, ending the week 4.7 percent over last week. The largest gain on an absolute basis was registered by the power sector, which increased 12.3 percent over last week and 13.1 percent over this week last year. A strong uptick in demand in the power sector was seen Tuesday and was likely due to high temperatures, especially in the Northeast. A decrease in consumption in the industrial sector made up for some of the increased consumption elsewhere.
Supply remained essentially level over the week and posted a modest 1.2 percent increase over last week. According to Bentek Energy estimates, U.S. production increased only 0.4 percent over last week. There were notable differences, however, in other supply sources between this week and last week, with Canadian imports increasing 12.4 percent and LNG imports declining by 29.5 percent. Net Canadian imports increased across the board, with the most significant increase in the Northeast where Canadian imports exceeded last week’s level by 29 percent. Conversely, LNG imports fell 29.5 percent, continuing the decline experienced last week and ending on July 1 at the year’s lowest level of 400 million cubic feet (MMcf) per day. The largest decline, 340 MMcf per day, was at Golden Pass, with Everett experiencing the second largest decline of 130 MMcf per day. Domestic weekly gas production averaged slightly less than 64.7 Bcf per day. Production held above 64 Bcf per day throughout the week and exceeded 65 Bcf per day on Monday and Tuesday before falling back on Wednesday. Domestic production now stands 7.2 percent above this time last year. Canadian imports are 9.8 percent below year-ago volumes and LNG imports are 47.4 percent below.

More Price Data

Storage

Working natural gas in storage rose to 2,527 Bcf as of Friday, July 1, according to EIA’s WNGSR (see Storage Figure). The net build of 95 Bcf was higher than the 5-year average build for the week of 80 Bcf and last year’s build of 73 Bcf. Stocks are now 224 Bcf below last year’s level and 48 Bcf below the 5-year average.
Stocks last week grew at an above average pace in each of the three storage regions. While storage levels in the East and West regions remain well below the 5-year average levels, the gap has been narrowing for the past 3 weeks in the East and the past 4 weeks in the West. Meanwhile, the Producing Region, which has seen mostly larger than average builds in 2011, is 107 Bcf above the 5-year average.
Temperatures in the lower 48 States during the week ending June 30 were slightly cooler than normal and cooler than last year. The National Weather Service’s degree-day data show that the temperature in the lower 48 States last week averaged 73.1 degrees, 0.1 degrees cooler than normal, and 2.4 degrees cooler than last year (see Temperature Maps and Data) Temperature Maps and Data). All regional temperatures were fairly close to normal levels with the West South Central showing the most deviation at 4.0 degrees warmer than normal. Cooling degree-days were almost equal to normal but about 21 percent below last year.

More Storage Data

Other Market Trends

Argentina Makes Long-Term LNG Deal With Qatar. Qatar has agreed to a long-term commitment to supply 700 MMcf per day of LNG to Argentina, according to reports by BENTEK Energy. For Argentina, which only began importing LNG two years ago and has relied on spot supplies, this is their first long-term contract. According to BENTEK Energy, the deal is advantageous for Qatar, which has been trying to find markets for new LNG production. Qatar is the world’s largest LNG exporter, exporting close to 1.8 trillion cubic feet (Tcf) in 2009, the most recent year for which data are available and reported in an EIA Country Analysis Brief. At that time, countries in Asia (Japan, India, and South Korea), and countries in Western Europe (United Kingdom, Spain, and Belgium) made up the vast majority of consumers of Qatari LNG.
New York State Proposes Fracking Guidelines. The New York Department of Environmental Conservation (DEC) released new proposed rules for hydraulic fracturing or hydrofracking, which was effectively banned under an executive order by former governor David Paterson. According to the DEC, if adopted, the rules would open up about 85 percent of Marcellus Shale land in the State of New York for potential production. The rules propose allowing hydrofracking on private lands in the State, excluding watersheds around New York City and Syracuse. Surface drilling would be prohibited on state-owned lands, including parks, forests, and wildlife areas. Additionally, the DEC proposed regulations to protect drinking water, prevent gas migration, and control spills. The proposed regulations are stricter than 2009 draft recommendations, which, among other things, would have allowed hydrofracking in the New York City and Syracuse watersheds. The DEC noted that the regulations would be under a comment period for 60 days beginning in August. More information is available at: http://www.dec.ny.gov/press/75403.html.

NuEnergen Weekly Natural Gas Report (For the Week Ending Wednesday, June 29, 2011)

• Nearly all pricing points were down slightly for the week on light weather load despite an end-week rally anticipating warmer weather for the approaching July 4th holiday weekend. The Henry Hub price decreased 2 cents per million Btu (MMBtu) over the week (0.5 percent) to close at $4.40 per MMBtu on June 29.
• Working natural gas in storage rose last week to 2,432 billion cubic feet (Bcf) as of Friday, June 24, according to the U.S. Energy Information Administration’s (EIA) Weekly Natural Gas Storage Report (WNGSR). The implied increase for the week was 78 Bcf, leaving storage volumes positioned 243 Bcf under year-ago levels.
• At the New York Mercantile Exchange (NYMEX), the August 2011 natural gas contract price also lost ground over the week, closing at $4.315 per MMBtu on Wednesday.
• The natural gas rotary rig count, as reported June 24 by Baker Hughes Incorporated, rose by 3 to 873 active units, reflecting the resiliency in gas-directed drilling activity. Not to be outdone, oil-directed rigs were up 19 to 1,003, increasing the disparity between the two drilling objectives.

More Summary Data

Prices

At the NYMEX, the price of the August 2011 contract decreased 3.5 cents (0.8 percent) over the week from $4.350 per MMBtu last Wednesday to $4.315 per MMBtu yesterday. However, the contract rose 10.4 cents over a 3 day period likely on several developing but scattered localized heat waves and speculation over formation of the season’s first named tropical storm (Arlene) which served more as a reminder of things to come later rather than as a catalyst boosting prompt prices. However, these factors possibly contributed to a small increase in the price of the 3 Month Strip over the week.

The Henry Hub price reflected the week’s price malaise by decreasing 0.5 percent from $4.42 per MMBtu during the week to close at $4.40 per MMBtu yesterday. As the accompanying table shows, the Henry Hub price exhibited a 21 cent price reversal over the past 3 days this week but could not overcome a weekly loss.
End-market natural gas prices followed the lead of their wholesale counterparts and generally stagnated over the week. For example, the New York citygate decreased by $0.07 per MMBtu to close at $4.77 per MMBtu. Likewise, the Chicago citygate decreased a more modest $0.05 per MMBtu and ended the week at $4.47 per MMBtu.
Despite the generally light prevailing weather load, consumption managed a small seasonal increase. According to estimates from BENTEK Energy Services, LLC, domestic gas consumption increased this week by 2.3 percent over last week. The residential/commercial sector led the increase on a percentage basis, although from a small base. Spurring the uptrend, the industrial sector rose a healthy 7.5 percent. However, the power sector recorded a 4.1 percent decrease, which occurred mostly in the lull before expanding cooling loads returned this week.
Against the lackadaisical pricing backdrop, supply was mixed and down slightly. According to BENTEK Energy estimates, the week’s average total nominal gas supply posted a 0.5 percent decrease from last week’s level. Domestic weekly gas production averaged over 64.4 Bcf per day, down 0.7 percent from the previous week. Production held above 64 Bcf per day on all but one day of the week. Domestic production now stands 6.4 percent above this time last year. The week’s production drop was offset somewhat by an 8.8 percent increase in Canadian imports, which averaged 5.8 Bcf per day. Canadian imports remain 20.3 percent below year-ago volumes. Supply also abated substantially for liquefied natural gas (LNG) where imports slid to just under 0.6 Bcf per day during the week, and remain 59.7 percent below year-ago levels.

More Price Data

Storage

Working natural gas in storage rose to 2,432 Bcf as of Friday, June 24, according to EIA’s WNGSR (see Storage Figure). The net build of 78 Bcf was slightly higher than the 5-year average build for the week of 77 Bcf and last year’s build of 63 Bcf. Stocks are now 243 Bcf below last year’s level and 63 Bcf below the 5-year average.
The East and West Regions experienced above average builds for the second straight week. While storage levels in both regions remain well below the 5-year average levels, the East and West builds were 2 and 3 Bcf above average, respectively. Meanwhile, the Producing Region, which has seen mostly larger than average builds in 2011, grew 4 Bcf less than average. Stocks in the region remain 105 Bcf above the 5-year average.
Temperatures in the lower 48 States during the week ending June 23 were warmer than normal but cooler than last year. The National Weather Service’s degree-day data show that the temperature in the lower 48 States last week averaged 73.7 degrees, 1.7 degrees warmer than normal, and 3.6 degrees warmer than last week (see Temperature Maps and Data). For the first time in seven weeks, the Pacific Region has been warmer than normal. Only the Mountain and West North Central Regions experienced cooler than normal weather. The highest temperatures were in the West South Central Region which averaged 84.6 degrees.

More Storage Data

Other Market Trends

EIA’s Form-914 Data Indicate Increased Domestic Production. Data from EIA’s monthly production survey, released June 29, 2011, indicate that gross withdrawals of natural gas rose to 77.84 Bcf per day in April 2011. This is an increase of 3.3 percent from the previous month and 5.7 percent from the same month last year. The monthly increases were led by Texas and Louisiana, each increasing 0.16 Bcf per day from March. Oklahoma, Wyoming, and the Other States category (which includes states not separated out in the data report) all increased, offsetting month over month production losses in the Federal Offshore Gulf of Mexico, New Mexico, and Alaska. The Other States category, which includes states in the Marcellus Shale, grew from March levels by 0.38 Bcf per day or 2.1 percent to 18.49 Bcf per day in April.
EPA Selects Sites for Fracking Study. The U.S. Environmental Protection Agency (EPA) has selected seven case study sites for a national study on hydraulic fracturing, according to information released June 23. The focus of the study is to better understand the impact that hydraulic fracturing, used in the development of natural gas from shale formations, has on drinking water. At two sites (located in Washington County, Pennsylvania, in the Marcellus Shale; and DeSoto Parish, Louisiana, in the Haynesville Shale) the EPA will monitor aspects of fracking through the lifecycle of a well. Five other sites where fracking has occurred were chosen for retrospective case studies. The EPA chose sites in the Bakken Shale in North Dakota, the Barnett Shale in Texas, two separate sites in the Marcellus Shale in Pennsylvania, and a site in the Raton Basin in Colorado.

NuEnergen Weekly Natural Gas Report (For the Week Ending Wednesday, June 22, 2011)

• Natural gas prices fell slightly at most market locations from Wednesday, June 15 to Wednesday, June 22. The Henry Hub price fell 10 cents from $4.52 per million Btu (MMBtu) last Wednesday to $4.42 per MMBtu yesterday.
• At the New York Mercantile Exchange, the price of the July 2011 near-month futures contract fell by 26 cents, or about 6 percent, from $4.58 last Wednesday to $4.32 yesterday.
• Working natural gas in storage rose to 2,354 this week, according to EIA’s Weekly Natural Gas Storage Report (WNGSR).
• The natural gas rotary rig count, as reported by Baker Hughes Incorporated, fell to 870 as of Friday, June 17.

More Summary Data

Prices

Prices fell slightly at most market locations, with some exceptions, mainly in the Northeast. The small declines in prices were likely a reflection of moderate weather during the report week across much of the country. Recent rain in Texas may have played a role in moderating demand for natural gas to meet cooling needs. At Transcontinental Pipeline’s Zone 6 pricing point for delivery into New York City, prices rose on the week 8 cents. At Tennessee Gas Pipeline’s Zone 5 and Zone 6 trading points in New England, prices increased 9 cents and 12 cents on the week, respectively, with increases at the end of the report week likely due to concerns about reduced flows on the pipeline and an imbalance warning issued by El Paso Corporation, the pipeline’s parent company.
Natural gas demand rose slightly from the previous week, and remained flat year over year. Declines in residential and commercial consumption were offset by a 5.3 percent increase in consumption for natural gas for electric power generation and a 2.5 percent increase in industrial consumption, according to BENTEK Energy Services, LLC data. Despite the week over week increase, electric power consumption remains 10 percent below levels during the same week last year, most likely the result of moderate temperatures compared to this time last year. Power burn near the end of the report week declined substantially, specifically in the Midwest, Gulf area, and Southeast.
Supply this week increased slightly, as increases in production were offset by declines in pipeline imports from Canada. Production increased 0.6 percent, according to data from BENTEK and is 7.2 percent greater than its year-ago level. Canadian imports dropped 5.4 percent this week, with all three import regions (West, Midwest, and Northeast) posting declines. According to BENTEK, strong natural gas demand from hot weather in early June has helped spur production growth in the Marcellus and Huron Shale areas of West Virginia. Production from West Virginia has grown over 350 million cubic feet (MMcf) per day year-to-date, according to BENTEK, and exceeded 1 billion cubic feet (Bcf) per day in early June.
While imports from Canada declined, pipeline exports to Mexico increased on the week. Already up substantially from last year, exports to Mexico averaged 1.32 Bcf per day this week, an increase of about 5.6 percent from the previous week’s level, according to BENTEK. During the same week last year, exports to Mexico averaged 0.9 Bcf per day. Demand for natural gas for power generation has increased substantially in Mexico, while the national petroleum company PEMEX has reported declines in natural gas production.

NYMEX price declines were steeper than they were on the spot market. The near-month (July 2011) contract dropped 26 cents, from $4.58 per MMBtu last Wednesday to $4.32 per MMBtu yesterday. The 12-month strip dropped 23 cents from $4.83 per MMBtu last Wednesday to $4.60 per MMBtu yesterday.

More Price Data

Storage

Working natural gas in storage rose to 2,354 Bcf as of Friday, June 17, according to EIA’s WNGSR (see Storage Figure). For the first time in four weeks, the net build of 98 Bcf was higher than both the 5-year average build for the week of 86 Bcf and last year’s build of 81 Bcf. This week’s build was the second largest so far in 2011. Stocks are now 258 Bcf below last year’s level and 64 Bcf below the 5-year average.
The East and West Regions experienced rare strong builds. While both regions remain well below the 5-year average levels, the East and West builds were 7 and 5 Bcf above average, respectively. Meanwhile, the Producing Region which has seen mostly larger than average builds in 2011 grew at the national average pace this week. The region remains 109 Bcf above the 5-year average.
Temperatures in the lower 48 States during the week ending June 16 matched normal levels but were slightly cooler than last year. The National Weather Service’s degree-day data show that the temperature in the lower 48 States last week averaged 70.1 degrees, 2.3 degrees cooler than the previous week, and also 2.3 degrees cooler than last year (see Temperature Maps and Data). For the sixth straight week, the Pacific Region has been cooler than normal. The Northeastern and Midwestern regions were also cooler than normal while much of the South was warmer. The highest temperatures were in the West South Central Region which averaged 84.3 degrees.

More Storage Data

Other Market Trends

Processing Plant Capacity Increases from 2004 to 2009 as Plants Also Become More Efficient. EIA on June 17 released a special analysis of natural gas processing plants in the United States. According to the report, processing plant capacity increased a net 12 percent over the period from 2004 to 2009. As of 2009, there were 493 processing plants in the United States with a total capacity of 77.5 Bcf per day. Texas, the State with the highest capacity in 2009 at 19.7 MMcf day, saw the largest increase, with total capacity rising more than 4 Bcf per day. Other substantial increases in capacity occurred in Louisiana, Colorado, Mississippi, and Arkansas. Average capacity per plant nationwide rose from 114 MMcf per day to 157 MMcf per day. Though total capacity rose, the number of processing plants fell in 15 states. As old plants were retired, they were replaced by new, more efficient processing plants. Plants tend to be clustered in major natural gas producing areas, such as the Gulf Coast, the Rocky Mountains, and Alaska. The Gulf of Mexico States (Texas, Louisiana, Mississippi, Alabama, and Florida), which have traditionally accounted for the majority of natural gas production, are home to gas rich in natural gas liquids (NGLs). The NGLs must be removed before the natural gas is of pipeline quality, and processing plants play an important role here; Texas and Louisiana alone account for nearly half of the total processing capacity in the United States.
Rig Count Drops to 870. The natural gas rotary rig count, as reported by Baker Hughes Incorporated on June 17, fell to 870, a drop of 9 from the previous week’s level. Natural gas rigs are now 9 percent below their year-ago level, and 5 percent below their level at the beginning of 2011. Natural gas rigs have oscillated in the upper 800s for the past few months, as oil rigs (currently at 984) have increased steadily. Current strength in natural gas production (despite the lack of growth in the rig count) may be partially attributable to associated production from oil wells. Horizontal rigs (which include both oil and natural gas) have risen 12 percent since the beginning of 2011 and 28 percent since the same time last year. Vertical rigs (also including both oil and natural gas) have risen 4.3 percent since the beginning of the year and 16 percent since the same time last year.

NuEnergen Weekly Natural Gas Report (For the Week Ending Wednesday, June 8, 2011)

• Natural gas prices rose on the week across the board, with somewhat moderate increases in most areas and steep increases in the Northeast United States. The Henry Hub spot price rose 20 cents on the week from $4.63 per million Btu (MMBtu) last Wednesday, June 1, to $4.83 per MMBtu yesterday.
• At the New York Mercantile Exchange, the price of the near-month (July 2011) contract rose about 5 percent, from $4.692 last Wednesday to $4.847 yesterday.
• Working natural gas in storage rose to 2,187 billion cubic feet (Bcf) as of Friday, June 3, according to EIA’s Weekly Natural Gas Storage Report (WNGSR).
• The natural gas rotary rig count, as reported by Baker Hughes Incorporated on June 3, rose by 6 on the week to 887. Though the rig count is 60 rigs below its year-ago levels, large increases in the oil-directed rig count could lead to additional production of associated gas.

More Summary Data

Prices

While most price increases across the country were somewhat moderate, a heat wave in the Northeast led to substantial jumps in prices as consumers used natural gas via electric generation for cooling. At Transcontinental Pipeline’s Zone 6 trading point for delivery into New York City, prices rose $2.32 per MMBtu, from $5.03 last Wednesday to $7.35 yesterday. From Tuesday to Wednesday, the New York City price jumped $1.27 per MMBtu. At many other trading locations in the Northeast, prices behaved similarly, increasing more than a dollar on the week. The differential between the New York price and the Henry Hub price, as well as the difference between the Boston price and the Henry Hub price, spiked in the last few days of the report week.

The heat in the Northeast led to a marked increase in Canadian pipeline imports to the area. While Canadian imports to the Midwest and West fell on the week, according to data provided by BENTEK Energy Services, LLC, pipeline imports to the Northeast rose 17.6 percent from the previous week. On Wednesday, June 8, Canadian imports to the Northeast totaled 1.6 Bcf, a sharp uptick from the weekend levels below 500 million cubic feet (MMcf). The increase in Canadian imports to the Northeast, as well as increases in flows from the Southeast, was spurred by the increase in Northeast prices relative to other areas.
Natural Gas power burn for the total Lower 48 States rose 7 percent week over week, driven by gains in the Northeast, Midwest, and Southeast. West power burn remains relatively low, as the Bonneville Power Administration has put into place a curtailment policy for the Pacific Northwest on thermal and wind generation, in response to large amounts of hydro resulting from runoff from the largest snowpack in years. Natural gas supply this week remained high, though dropping slightly from last week. Production fell less than one-half of one percent, but levels remained above 64 Bcf per day, according to BENTEK data. LNG sendout dropped close to 27 percent from the previous week, as sendout from the Golden Pass facility declined from its level of more than 700 MMcf per day seen the past couple of weeks.
Warm temperatures prevailed across most of the rest of the country, though price increases were not nearly as robust as they were in the Northeast. In Chicago, for example, temperatures reached into the 90s on Tuesday, and the Chicago Citygate price hit $5.02 per MMBtu, an increase of 30 cents from the previous week. As temperatures cooled off the next day, the price dropped back down to $4.92 per MMBtu.
At the New York Mercantile Exchange, the price of the near-month (July 2011) contract rose from $4.692 last Wednesday to $4.847. The 12-month strip (the average of the 12 contracts between July 2011 and June 2012) rose from $4.89 to $5.05. The largest increases were on the front end of the 12-month strip, as contracts between July and October rose more than 20 cents on the week.

More Price Data

Storage

Working natural gas in storage rose to 2,187 Bcf as of Friday, June 3, according to EIA’s WNGSR (see Storage Figure). The 80 Bcf net build is, for the second week in a row, lower than both the 5-year average build for the week of 96 Bcf and last year’s build of 98 Bcf. Stocks are now 255 Bcf below last year’s level and 58 Bcf below the 5-year average.
Every region witnessed a smaller than average build. The East and West Regions continue to lag well behind previous years. The East Region is now 124 Bcf below average and 180 Bcf below last year. In fact, the region is just 24 Bcf above the 5-year minimum storage level reached in 2008 at this time.
Temperatures in the lower 48 States during the week ending June 2 were warmer than normal but slightly cooler than last year. The National Weather Service’s degree-day data show that the temperature in the lower 48 States last week averaged 69.9 degrees, 3.3 degrees warmer than the 5-year average and 1.3 degrees colder than last year (see Temperature Maps and Data). Similar to the previous week, every region of the country was warmer than normal with the exception of the Mountain and Pacific Regions in the West. The Northeast was particularly hot with the New England and Middle Atlantic Regions 9.6 and 9.9 degrees hotter than normal. Cooling degree-days were 61.7 percent above normal for the country.

More Storage Data

Other Market Trends

EIA Expects Strength in Natural Gas Production in 2011. EIA released its Short-Term Energy Outlook on June 8, 2011, which includes short-term forecasts through the end of 2012. This month’s Outlook significantly revises the natural gas marketed production forecast for 2011, to 64.6 Bcf per day, up 2.3 percent from the previous month’s forecast. The strength in production occurs despite a year-over-year decline in gas-directed rig activity; however, recent growth in oil-directed rigs could lead to greater production of associated natural gas. Consumption is expected to total 67.1 Bcf per day in 2011, and 67.2 in 2012. Both consumption of natural gas for electric power generation and industrial consumption grow in 2011 and 2012. This month’s Outlook expects Henry Hub prices to rise in 2012 to $4.58 per MMBtu, from $4.25 per MMBtu in 2011. The increase in prices will play a role in maintaining strength in production in 2012.
U.S. Exports to Canada and Mexico Increase Year-To-Date 2011. U.S. pipeline exports of natural gas have increased substantially in 2011, likely one result from continued near-record high U.S. natural gas production. As reported in the Natural Gas Monthly for May 2011, U.S. exports to Canada for the first quarter of 2011 increased a total of about 50 Bcf or approximately 24.7 percent in comparison with 2010. This increase is having an effect on net imports from Canada, which decreased year-to-year 6.5 percent through the first quarter of 2011. Gross U.S. pipeline exports to Mexico, which is historically the recipient of the second largest volume of U.S. exports behind those to Canada, in the first three months of 2011 nearly doubled in comparison to the same time period in 2010. Through March 2011, U.S. exports to Mexico reached 113.4 Bcf, compared with 66.5 Bcf in 2010. This increase corresponds with lower natural gas production by Petróleos Mexicanos (Pemex), the Mexico State oil and natural gas company. Through April 2011, overall production by Pemex decreased 1.7 percent. However, in the north of Mexico (where supplies compete with U.S. exports), the decrease is higher at 10.9 percent year-to-date. If the current pace of U.S. exports continues, U.S. exports in 2011 would set a record high at well above 1 trillion cubic feet. According to BENTEK Energy, which monitors the U.S. pipeline grid (including import and export points) for information on flows of natural gas, the increased level of exports has continued through the beginning of June. As of June 9, U.S. exports to Mexico are up year-to-date by 86.2 percent. Similarly, U.S. exports to Canada have increased 3.2 percent on the year, leading to an 8.0 percent decline in net imports from Canada.

Natural Gas Transportation Update

(Note: As part of a re-design of the Natural Gas Weekly Update (NGWU), the Transportation Section will be discontinued after this week. More changes in the NGWU will be announced in the near future.)
• Sea Robin Pipeline Company, LLC, on Tuesday said that it had completed system maintenance and repairs on a 30-inch diameter pipeline in the Gulf of Mexico. The pipeline company said it is once again accepting nominations from their receipt point at South Marsh Island. The Sea Robin gas processing plant, on the company’s pipeline system, had resumed processing and plant thermal reduction operations and was accepting nominations for Wednesday.
• On Tuesday, Algonquin Gas Transmission, LLC, reported an outage at its compressor station in Oxford, Connecticut. As repair efforts continue, there will be a capacity reduction of about 210 MMcf per day through the area.
• Several pipeline companies in the U.S. Northeast this week cautioned shippers of reduced flexibility on their pipelines due to higher demand from a heat wave in the region. Tennessee Gas Pipeline Company cited scheduled maintenance and warmer market-area forecasts in issuing a notice requiring all delivery point operators in those zones to keep actual daily takes out of the system equal to or less than scheduled quantities regardless of their cumulative imbalance position. Similarly, pipelines owned by Spectra Energy Corporation (including Texas Eastern Gas Transmission, Algonquin, and Maritimes & Northeast Pipeline) are requiring shippers in their Northeast market area to either stay on rate or run positive imbalances starting Tuesday until further notice.

NuEnergen Weekly Natural Gas Report (For the Week Ending Wednesday, June 1, 2011)

• The past week was marked by two distinct trading markets — “before” and “after” the Memorial Day holiday. Cash markets were listless going into the holiday weekend but escalated Tuesday following an early heat wave that drifted into the East. The Henry Hub price advanced 27 cents per million Btu (MMBtu) for the week (6.2 percent) to close at $4.63 per MMBtu on June 1.
• Just prior to the heat wave, working natural gas in storage last week rose to 2,107 billion cubic feet (Bcf) as of Friday, May 27, according to the U.S. Energy Information Administration’s (EIA) Weekly Natural Gas Storage Report (WNGSR). The implied increase for the week was 83 Bcf, leaving storage volumes positioned 237 Bcf below year-ago levels.
• At the New York Mercantile Exchange (NYMEX), the July 2011 natural gas contract price gained in all but one day of the week, closing at $4.629 per MMBtu on Wednesday.
• The natural gas rotary rig count, as reported May 27 by Baker Hughes Incorporated, rose by 15 to 881 active units, representing the first gain in 3 weeks and the largest absolute increase since November. Meanwhile, oil-directed rigs were up 4 to 958, still maintaining the disparity between the two drilling objectives.

More Summary Data

Prices

At the NYMEX, the price of the July 2011 contract increased 20.6 cents (4.7 percent) over the week from $4.423 per MMBtu last Wednesday to $4.629 per MMBtu yesterday. With the official start of summer still 19 days away, the NYMEX price rose in half of the trading sessions (Monday was an exchange holiday), likely due to forecasts of hotter weather continuing into next week, but gave back 3.7 cents yesterday possibly in response to reports of rising domestic natural gas production.
The Henry Hub price reflected the post-holiday price surge by advancing 6.2 percent from $4.36 per MMBtu last week to close at $4.63 per MMBtu yesterday. The Henry Hub price advance eclipsed that of the NYMEX and accomplished most of the increase in a single day (Tuesday).
End market natural gas prices followed the lead of their wholesale counterparts and advanced somewhat more vigorously. For example, the New York citygate increased by 32 cents per MMBtu to close at $5.03 per MMBtu, despite giving back 12 cents yesterday. Likewise, the Chicago citygate increased a more modest $0.27 per MMBtu and ended the week at $4.72 per MMBtu.

Despite the holiday respite, increasing natural gas consumption due to the cooling load was likely the chief catalyst contributing to price strength this week. According to estimates from BENTEK Energy Services, LLC, domestic gas consumption increased this week by 4.1 percent over last week. The power sector showed the largest absolute and percentage increase at 10.6 percent in response to increased air conditioning load demand created by the heat wave. Not to be outdone, both the residential/commercial sector and the industrial sector also posted 0.3 percent consumption increases during the week.
According to BENTEK estimates, the week’s average total nominal gas supply registered an increase of 0.9 percent from last week’s level. Domestic weekly gas production averaged over 64.7 Bcf per day, up 0.9 percent. Production never dropped below 64 Bcf per day the entire week and even saw two days where production exceeded 65 Bcf per day. Domestic production now stands 6.5 percent above this time last year. The week’s production gain was accompanied by a 1.2 percent increase in Canadian imports, which averaged just above 5.3 Bcf per day. Although this import level represents a reversal from the drop last week, Canadian imports now stand 16.1 percent below year-ago volumes. Supply also picked up slightly in the liquefied natural gas (LNG) arena where imports increased to over 1.1 Bcf per day during the week, but still remain 11.9 percent below year-ago levels.

More Price Data

Storage

Working natural gas in storage rose to 2,107 Bcf as of Friday, May 27, according to EIA’s WNGSR (see Storage Figure). The 83 Bcf net build is considerably lower than the 5-year average build for the week of 99 Bcf as well as last year’s build of 90 Bcf. This reverses two consecutive weeks of above average builds. Stocks are now 237 Bcf below last year’s level and 42 Bcf below the 5-year average.
Unusually for this year, the Producing Region saw the lowest relative build. The East and West Regions added 6 Bcf (11 percent) and 2 Bcf (13 percent) less than the average for the week, while the Producing Region added 8 Bcf (30 percent) less. However, the overall movement towards greater relative stocks in the Producing Region continues. Working gas stocks in the Producing Region remain 125 Bcf above average for the year. The East and West Regions’ stocks are 116 Bcf and 51 Bcf below average.
Temperatures in the lower 48 States during the week ending May 26 were wamer than normal but slightly cooler than last year. The National Weather Service’s degree-day data show that the temperature in the lower 48 States last week averaged 66.6 degrees, 2.0 degrees warmer than the 5-year average and 0.9 degrees colder than last year (see Temperature Maps and Data). Every region of the country was warmer than normal with the exception of the Mountain and Pacific Regions in the West. Nationally, heating degree-days were 19 percent less than normal, but cooling degree-days were 29 percent above normal. As the weather continues to warm, cooling degree-days will become more important as natural gas is consumed for electric power.

More Storage Data

Other Market Trends

Marketed Production Hits 64.84 Bcf/d in March. On May 31, 2011, EIA released the Natural Gas Monthly, which includes data through March 2011. Total marketed production grew to 64.8 Bcf/d, an increase of about 4 percent from the previous month (production in February, however, was relatively low due to wellhead freeze-offs). Working storage inventories ended March (the official end of the withdrawal period) at 1,581 Bcf, representing total withdrawals of 2,266 Bcf during the winter heating season. Inventories at the end of March 2011 were about 5 percent less than inventories for the same time in 2010. Total consumption declined from 87.5 Bcf/d in February to 71.3 Bcf/d in March, largely a reflection of declines in the residential and commercial sectors as heating degree-days declined. Consumption of natural gas for electric power generation and industrial consumption declined 8 percent and 12 percent, respectively.
Hydropower Continues to Abound in the Pacific Northwest. In an exceptionally strong season for hydropower in the Pacific Northwest, generation has remained elevated, following heavy rains over Memorial Day weekend. High generation is expected to continue as additional rain is forecast for this week, and as incoming warmer temperatures will lead to increased runoff from the Pacific Northwest’s largest snowpack in years, according to recent reports by BENTEK Energy. An oversupply of hydroelectricity led the Bonneville Power Administration (BPA) to issue a curtailment policy last month, which limits first thermal power generation (coal and natural gas), then wind generation. According to BENTEK, thermal generation has dropped close to zero as a result of recent implementation of the curtailment policy. Since implementation of the policy, 49 GWh (from both thermal and wind generators) has been curtailed, according to BENTEK. More information from BPA is available at: http://www.bpa.gov/corporate/BPANews/ArticleTemplate.cfm?ArticleId=article-20110518-01

Natural Gas Transportation Update

• Questar Pipeline Company has announced that it will complete repairs today, Thursday, June 2, at its compressor station in Greasewood, Colorado. Customers may now schedule flows under normal operating conditions to TransColorado Pipeline and the White River Hub. A mechanical failure required Questar to shut down the compressor station for repairs on Tuesday of this week; as a result, nominations were not accepted to TransColorado and White River Hub.
• On Friday, May 27, Northwest Pipeline Company on Friday said that it had discovered several mainline dents near its compressor station in Soda Springs, Idaho. As a result, the pipeline company removed a pipeline segment from service and was conducting investigations, during which available capacity at Soda Springs would be limited to 497 million cubic feet per day. With current nominations there exceeding this level, Northwest expected to be allocating capacity according to service priority.
• Northwest Pipeline also reported that the Jackson Prairie storage facility in Chehalis, Washington will upgrade its control system between June 1-7. During this time, the facility will not accept injection or withdrawal nominations. Northwest said that it will have very limited balancing capability while Jackson Prairie is unavailable.