• A confluence of unsupportive market conditions served to undermine gas prices at all pricing points during the week. The Henry Hub price closed down 44 cents for the week to $3.11 per million British thermal units (MMBtu) on November 16.
• At the New York Mercantile Exchange (NYMEX), the December 2011 natural gas contract slid 30.8 cents per MMBtu for the week to close at $3.344 per MMBtu.
• Working natural gas in storage rose last week to a record 3,850 billion cubic feet (Bcf) as of Friday, November 11, according to the U.S. Energy Information Administration’s (EIA) Weekly Natural Gas Storage Report (WNGSR). The implied increase for the week was 19 Bcf, leaving storage volumes positioned 14 Bcf above year-ago levels.
• The natural gas rotary rig count, as reported November 11 by Baker Hughes Incorporated, fell by 30 to 877 active units. Meanwhile, oil-directed rigs increased by 21 to 1,133 units.

Prices

Movement in the Henry Hub day-ahead price reflected the decline of other trading locations in this week’s cash market by falling 12.4 percent from $3.55 per MMBtu the previous Wednesday to $3.11 per MMBtu yesterday. As the accompanying table shows, the Henry Hub cash price progressed steadily downwards with five days of consecutive losses as end-use markets cut back on immediate gas consumption.

At the NYMEX, the December 2011 contract fell 30.8 cents (8.4 percent) over five consecutive days from $3.652 per MMBtu last Wednesday to $3.344 per MMBtu yesterday. Over the same period, the January 2012 and February 2012 natural gas futures contracts dropped 26.6 cents and 26.5 cents per MMBtu, respectively, illustrating the potential impacts high storage levels coupled with continued robust production could have on gas prices this coming winter.

All trading locations responded with lower prices stemming from lack of weather load this week. Spot prices at Transcontinental Pipeline’s Zone 6 trading point for delivery into New York City, which started the week at $3.82 per MMBtu, showed a 34 cent price loss per MMBtu over the week (Wednesday to Wednesday) to close at $3.48 per MMBtu (down 8.9 percent). Over the same period, the Chicago citygate spot price registered a somewhat larger 41 cent per MMBtu price loss (also from $3.82 per MMBtu last Wednesday) and ended the week at $3.41 per MMBtu (down 10.7 percent).

In the midst of generally mild fall temperatures and the absence of any significantly colder weather load, consumption posted a modest decrease for the week. According to estimates from BENTEK Energy Services, LLC (BENTEK), domestic gas consumption decreased by 2.4 percent over last week. The residential/commercial sector led the decline with a 5.3 percent loss while the industrial sector tallied the only gain with a 0.4 percent increase. The power sector posted a 1.2 percent drop reflecting the light weather load at the end of last week.

Consistent with the week’s lethargic consumption pattern and clear price slide, overall supply was off slightly. According to BENTEK estimates, the week’s overall average total gas supply posted a 0.4 percent decrease from last week’s level. Domestic weekly dry gas production averaged 63.5 Bcf per day, 0.5 percent lower than the previous week. Domestic dry gas production now stands 8.4 percent above this time last year. The slight fall in this week’s dry gas production was partially offset by a 0.6 percent increase in Canadian imports which averaged 4.7 Bcf per day over the period. Canadian imports stand 3.4 percent above year-ago volumes for the same week. There were modest supply gains registered in the liquefied natural gas (LNG) arena during the week where imports averaged 408 million cubic feet (MMcf) per day and remain 34.6 percent below year-ago levels.

Storage

Working natural gas in storage rose to 3,850 Bcf as of Friday, November 11, according to EIA’s WNGSR (see Storage Figure). This represents an implied net injection of 19 Bcf, higher than the 5-year average injection of 10 Bcf and last year’s draw of 1 Bcf. Weekly stocks reached an all time high, surpassing the previous weekly record of 3,840 Bcf from November 5, 2010.

While stocks are only slightly above last year’s levels, high production could mean another record setting week of injections. Weather will be a major factor as always. As of November 11, East and Producing Region stocks were respectively 14 Bcf and 9 Bcf above last year’s levels while the West Region is just 8 Bcf below last year’s level after a relatively cold week in the region.

Temperatures during the week ending November 10 were about 0.3 degrees cooler than the 30-year normal temperature level (see Temperature Maps and Data). Regionally, temperatures were very mixed. The Mountain and Pacific Divisions comprising most Western states were 5.1 and 6.1 degrees cooler than normal but the Midwest and Northeastern Divisions all saw above normal temperatures. The Southern divisions were mixed but close to normal for this time of year. Nationwide, heating-degree days matched normal levels.

Other Market Trends

Rig Count Drops to 877. The natural gas rotary rig count declined by 30 to 877 for the week ending November 11, 2011, according to data released by Baker Hughes Incorporated. This is the second consecutive decline, and this week’s decline follows another relatively large decline of 27 rigs posted last week. The natural gas rig count has fallen back to its lowest level since July 29, 2011. Natural gas rigs currently are far below levels close to 1,600 reached in the fall of 2008, but production has continued to rise. Some of the increases in production are from natural gas associated with oil production; oil rigs are currently at 1,133, and have steadily increased for the past couple of years. Efficiency gains, specifically in shale drilling, have also likely buoyed production levels in spite of declines in the rig count.

2011 LNG Re-Exports Expand in 2011. According to data released by the U.S. Department of Energy’s Office of Fossil Energy, 2011 LNG re-exports through September have totaled 42.4 Bcf for 2011. Total 2010 LNG re-exports were 34.5 Bcf. The two countries receiving the largest amounts of re-exports are Brazil and India, while South Korea, Japan, Spain, China, and the United Kingdom have also received cargoes. In the past few years, natural gas prices in the United States have been low compared with other destinations, and it is not uncommon for Japan spot prices to rise above $15 per MMBtu. While lower than prices in Asia, European prices (particularly, Zeebrugge in Belgium and the National Balancing Point in the United Kingdom) are often several dollars greater than U. S. prices. Since cargoes can attract much higher prices elsewhere, it is profitable to re-export cargoes from U.S. LNG terminals that have the capability to do so. All re-export cargoes from the United States have left from the Gulf of Mexico, with Cheniere’s Sabine Pass terminal the most active re-exporter. Cheniere plans to convert its Sabine Pass terminal to a liquefaction terminal, and hopes to export domestically produced natural gas. The company has received approval to export from the U.S. Department of Energy, but is still awaiting approval from the Federal Energy Regulatory Commission.

• Continuing its recent trend of languishing below the $4 per million Btu (MMBtu) mark, the Henry Hub natural gas spot price oscillated this week, and posted an overall net increase of 16 cents, from $3.39 per MMBtu last Wednesday, November 2, to $3.55 per MMBtu yesterday, November 9.
• At the New York Mercantile Exchange, the price of the near-month (December 2011) natural gas futures contract fell from $3.749 per MMBtu last Wednesday to $3.652 per MMBtu yesterday.
• Working natural gas in storage rose to 3,831 billion cubic feet (Bcf) as of Friday, November 4, according to EIA’s Weekly Natural Gas Storage Report (WNGSR).
• The natural gas rotary rig count, reported by Baker Hughes Incorporated on Friday, November 4, fell by 27 to 907. This decline reverses several weeks of a mostly upward trend and it is the largest single-week decline since April 2009.

Prices

Cash prices around much of the country, with a few exceptions, posted gains over the week. The Henry Hub price dropped overall from $3.39 per MMBtu last Wednesday to $3.55 yesterday, but movements during the week were mixed. On the last couple of days of trading in the report week, many pricing points around the country rallied slightly. The Henry Hub gained a total of 20 cents in these last two days.

Prices in New England were exceptions to the overall increase seen in spot prices. The Algonquin Citygate price, which serves as a proxy for prices in the Boston, Massachusetts area, fell from $4.19 per MMBtu last Wednesday to $4.03 per MMBtu yesterday. Similarly, prices on Tennessee Pipeline’s Zone 6 delivery points (which serve Connecticut, Massachusetts, Rhode Island, and New Hampshire) fell slightly over the report week. Outside of New England, however, Northeast prices rose, following the general trend of the rest of the country. At Transcontinental Pipeline’s Zone 6 delivery point serving New York City, prices rose from $3.59 per MMBtu last Wednesday to $3.82 per MMBtu yesterday.

For much of the week, the eastern part of the United States was warmer than normal, while the western part was cooler than normal. These temperature patterns boosted natural gas used for power burn in the Northeast, Midwest, and Southeast, and increased the use of natural gas used for residential and commercial heating in the Rockies and California regions. Southern California prices also reflected cooler temperatures, with the Southern California Citygate price rising from $3.71 per MMBtu last Wednesday to ¬¬$3.92 per MMBtu yesterday. The area warmed up near the end of the report week, however, and demand retreated. The Midwest was much warmer than normal, and Midwest power burn for the whole week reflected this, averaging almost 14 percent more than last week’s levels and 72 percent more than the same week last year.

Dry production was up about 0.4 percent this week, but declined somewhat near the end of the report week from levels greater than 64 Bcf per day from previously in the report week. The Independence Hub, an offshore natural gas production facility in the Gulf of Mexico, is currently offline for maintenance, removing close to 0.5 Bcf per day of natural gas from the Gulf. According to BENTEK Energy Services, LLC (BENTEK) estimates, this has brought Gulf of Mexico production to below 7 Bcf per day. However, BENTEK noted that companies were able to source gas from other regions of the country to maintain deliveries to consuming regions.

The NYMEX near-month (December 2011) contract lost 9.7 cents this week, falling from $3.749 per MMBtu last Wednesday to $3.652 per MMBtu yesterday. During its tenure as the near-month contract, which began on October 28, the December 2011 contract has lost 27.1 cents, or about 7 percent of its value. The 12-month strip (the average of the 12 contracts between December 2011 and November 2012) also fell this week, dropping from $3.945 per MMBtu last Wednesday to $3.825 per MMBtu yesterday.

This week, NYMEX prices entering the winter for the November 2011-March 2012 five-month strip reached their lowest levels seen since 2001-2002. Price expectations going into winter reached their highest point, at close to $12 per MMBtu, heading into the winter of 2005-2006, after Hurricanes Katrina and Rita caused natural gas supply disruptions in the Gulf of Mexico. In the past several years, however, as onshore lower 48 production has grown substantially, particularly in shale formations, winter price expectations have moderated.

Storage

Working natural gas in storage rose to 3,831 Bcf as of Friday, November 4, according to EIA’s WNGSR (see Storage Figure). This represents an implied net injection of 37 Bcf. Though October 31 each year is the official end of the injection season, storage builds often continue into November. In fact, the 5-year (2006 – 2010) averages for both November 4 and November 11 are positive, a net injection of 23 Bcf and 10 Bcf, respectively. Last year during the same week, working natural gas inventories rose 26 Bcf. Current inventories are 6 Bcf lower than their year-ago levels, and 215 Bcf above the 5-year average. Storage inventories are currently 16 Bcf below the all-time monthly high of 3,847 Bcf, which was recorded for the month of October 2010.

The Producing Region is the only region where stocks are above last year’s levels. Working inventories in this region total 1,235 Bcf, 4 Bcf more than year-ago levels. Inventories in the East and West Regions, however, are close to their year-ago levels, falling only 2 Bcf and 8 Bcf short, respectively. Stocks are above the 5-year average in all three of the storage regions.

Temperatures during the week ending November 3 were about 2.1 degrees cooler than the 30-year normal temperature level (see Temperature Maps and Data). Most Census Divisions were cooler than normal, with exceptions in the West North Central and the Pacific Census Divisions. Compared with the same week last year, overall temperatures in the United States were 2.3 degrees cooler.

Other Market Trends

Utica Shale Attracts Infrastructure Investment. Recently Caiman Energy announced it would build two short pipelines under the Ohio River to bring “wet” (liquids rich) natural gas from the Utica Shale in Ohio to the company’s processing plant in Marshall County, West Virginia. The company will commit $30 million, and such infrastructure investment is another sign of the importance of natural gas liquids in driving domestic production. The Utica Shale is located in the Northeast, and is situated about 8,000 feet below the surface of the Earth, and underneath the Marcellus shale. The Utica is primarily located beneath Pennsylvania, West Virginia, New York, and Ohio, which has recently been a major area of investment and interest. While currently, oil and natural gas production out of the State of Ohio remains small, several companies have made substantial investments, and permitting in the State (specifically in the eastern part of the State, where the Utica shale is located) has expanded. Some key developments and facts:

• On Friday, November 4, Schlumberger Limited’s Smith Bits STATS group reported that there were 16 active natural gas rigs in the state of Ohio.
• In October, 25 drilling permits were issued by the Ohio Department of Natural Resources. This was a record number of permits issued in a single month.
• Chesapeake is among the largest investor, having recently purchased a stake of 1.25 million acres of land. Other major players in the region include Hess Corporation, Chevron, CONSOL Energy, and Enervest.

Short-Term Energy Outlook Projects Continued Natural Gas Supply Growth. EIA released the Short-Term Energy Outlook (STEO) on November 8, with projections through the end of 2012. The latest STEO is also presented in a new, redesigned, interactive format. Among natural gas highlights this month:

• EIA expects U.S. marketed natural gas production to average 65.6 Bcf per day in 2011, and 66.9 Bcf per day in 2012. All of the growth in production results from increases in onshore production, which more than offset continuing declines from the Gulf of Mexico.
• Projected total natural gas consumption averages 67.1 Bcf per day in 2011, and 67.9 Bcf per day in 2012. Residential and commercial consumption are expected to increase in 2012 from their 2011 levels, mirroring the increase in heating degree-days.
• EIA expects that working natural gas inventories will total about 1.8 trillion cubic feet (Tcf) at the end of March 2012, the end of the winter heating season, with net withdrawals during the period totaling 0.3 Tcf less than last year. The projected value would be the highest end-of-March inventory level since 1991.
• Henry Hub natural gas spot prices are expected to average $4.09 per MMBtu in 2011. EIA expects prices to rise slightly to $4.13 per MMBtu in 2012.

• The previous report week's increasing prices gave way to relatively consistent declines across a large part of the country over this report week. The Henry Hub spot price showed a slight increase over the weekend, but closed down 26 cents for the week to $3.39 per million British thermal units (MMBtu) on November 2.
• At the New York Mercantile Exchange (NYMEX), the higher valued December 2011 natural gas contract moved into position as the near-month contract and declined by 2.6 cents per MMBtu to close the week at $3.749 per MMBtu.
• Working natural gas in storage rose last week to 3794 billion cubic feet (Bcf) as of Friday, October 28, 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 201 Bcf above their 5 year average.
• The natural gas rotary rig count, as reported October 28 by Baker Hughes Incorporated, increased by 7 to 934 active units. Oil-directed rigs, on the other hand, fell by 1 to 1,078 units.

Prices

Most trading locations across the country saw declining prices over the week, with the Henry Hub price falling from $3.65 per MMBtu last Wednesday to $3.39 per MMBtu yesterday. Slight upticks on Friday and Monday gave way to larger declines for the rest of the report week. The Northeast, where an early season snowfall moved in and propelled prices upward going into and over the weekend, was a departure from the overall decline. A price increase of 39 cents per MMBtu was posted at the Algonquin citygate in Massachusetts last Friday, and it increased another 12 cents over the weekend to reach a high of $5.00 per million Btu on Monday. As prices at other locations continued to fall throughout the week, prices in the Northeast did not ease off until Tuesday. By yesterday, the Algonquin citygate price had retreated to $4.19 per MMBtu.

At the NYMEX, the December 2011 contract declined 2.6 cents from $3.775 per MMBtu last Wednesday to $3.749 per MMBtu yesterday. The November 2011 contract expired at $3.524 per MMBtu on October 26, having lost 22 cents over its tenure as the near-month contract.

While most trading locations, including the Northeast, continued to decline towards the end of the report week, price increases at several Rocky Mountain and Midcontinent pricing points yesterday made them the exception to the rule. These pricing points were likely responding to a large weather system heading south out of Canada. The most notable increase was a 43 cent spike at the Northwest Sumas pricing point. This was its first price spike of the season and came particularly early. The higher prices in this part of the country caused strong increases in Ruby pipeline flows, which reached a record flow level of 1.0 Bcf per day, according to BENTEK Energy Services, LLC (BENTEK). Increased flows to the West on Ruby coincided with a drop in the Rockies Express Pipeline (REX) outflows to the East, which registered flows below 1.1 Bcf per day. Natural gas flows on REX fell to their lowest levels since early February, according to BENTEK.

Likely due to colder temperatures in parts of the country, consumption increased over the report week. According to estimates from BENTEK, domestic gas consumption increased by 12.6 percent over last week. Most of the increase was attributed to increases in demand in the residential/commercial sector, which posted an increase of over 30 percent. Power burn was down slightly over last week, and the industrial sector posted a gain of 2.6 percent. Exports to Mexico increased slightly over last week and averaged just over 1200 million cubic feet (MMcf) per day.

In spite of the increases in demand, overall supply was up only slightly. According to BENTEK estimates, the week’s overall average total gas supply posted a 0.2 percent increase from last week’s level. Domestic weekly dry gas production increased by 0.3 percent over the previous week, putting domestic dry gas production 7.8 percent above this time last year. The slight increase in domestic production was augmented by a 1.6 percent increase in Canadian imports. Canadian imports were 2.3 percent above year-ago volumes for the same week.

Storage

Working natural gas in storage rose to 3,794 as of Friday, October 28, according to EIA’s WNGSR (see Storage Figure). This represents a 78 Bcf implied net injection. Inventories are now 17 Bcf below their year-ago levels and 201 Bcf above the 5-year (2006-2010) average. The East region injected 32 Bcf; the West, 7 Bcf; and the Producing region, 39 Bcf. The Producing region is the only one of the three regions above its year-ago levels, but all three regions remain above their 5-year average levels.

This week’s injection is more than twice as large as the five-year average injection of 35 Bcf. During the same week last year, storage inventories rose by 67 Bcf. The end of October marks the traditional end of the injection season and the beginning of the winter heating season, though often, relatively small injections continue into November. In fact, for the next two upcoming storage injection report weeks, the 5-year average is a positive number, representing a net injection.

Average temperatures in the United States for the week ending October 27 were 1.1 degrees warmer than the 30-year normal, but 3.7 degrees cooler than last year’s levels (see Temperature Maps and Data). Temperatures were a few degrees warmer than normal in most Census divisions, with the exception of the South Atlantic and the East South Central, where temperatures were 1.6 and 1.7 degrees cooler than normal, respectively.

Other Market Trends

Tennessee Pipeline Line 300 Goes Into Service. Tennessee Gas Pipeline, a subsidiary of El Paso Corporation, placed into service its Line 300 expansion project, consisting of seven looping segments in Pennsylvania and New Jersey totaling about 127 miles added onto Tennessee’s existing system. In addition, 5500 horsepower was added to the system via two new compressor stations and upgrades at seven existing stations. The project is intended to transport natural gas produced in the growing Marcellus Shale region, and it is one of many projects planned for the area to accommodate further expected increases in production. The project increases capacity by 350 MMBtu per day. As soon as the pipeline went into service, prices rose at Tennessee’s Zone 4 Line 300 pricing point, where abundance of supplies and lack of takeaway capacity had led to depressed prices. Prices at the Line 300 station rose to $3.40 per MMBtu the day it went into service, from levels in the $1–$2 per MMBtu range (falling to just 97 cents per MMBtu on October 31). The pipeline goes through Northeast Pennsylvania, through areas of robust production, including Bradford and Susquehanna Counties.

• The weatherman’s promise for chillier temperatures later this week and mention of the word "snow" in some forecasts was the likely catalyst propelling prices upwards this week. In an environment of generally supportive market fundamentals, the Henry Hub price closed up 7 cents for the week to $3.65 per million British thermal units (MMBtu) on October 26.
• At the New York Mercantile Exchange (NYMEX), the November 2011 natural gas contract rose just under half a cent per MMBtu for the week to close at $3.590 per MMBtu.
• Working natural gas in storage rose last week to 3,716 billion cubic feet (Bcf) as of Friday, October 21, according to the U.S. Energy Information Administration’s (EIA) Weekly Natural Gas Storage Report (WNGSR). The implied increase for the week was 92 Bcf, leaving storage volumes positioned 28 Bcf under year-ago levels..
• The natural gas rotary rig count, as reported October 21 by Baker Hughes Incorporated, fell by 9 to 927 active units. Meanwhile, oil-directed rigs fell by 1 to 1,079 units.

Prices

Movement in the Henry Hub day-ahead price reflected the increase of most other trading locations in this week’s cash market by rising just under 2 percent from $3.58 per MMBtu the previous Wednesday to $3.65 per MMBtu yesterday. As the accompanying table shows, the Henry Hub cash price progressed steadily upwards starting last Friday as end-use markets responded to prospects of approaching chillier weather late this week.

At the NYMEX, the November 2011 contract rose 0.4 cents (0.1 percent) from $3.586 per MMBtu last Wednesday to $3.590 per MMBtu yesterday. Despite the weekly rise, the November 2011 contract, which expires today, dropped 6.8 cents yesterday as the December 2011 contract dropped 7.7 cents, likely reflecting uncertainty over anticipated storage builds today rather than immediate weather concerns.

Most trading locations responded with higher prices to prospects of chillier temperatures later this week. Spot prices at Transcontinental Pipeline’s Zone 6 trading point for delivery into New York City, which started the week at $3.83 per MMBtu, showed a 17 cent price gain per MMBtu over the period (Wednesday to Wednesday) to close at $4.00 per MMBtu (up 4.4 percent). Ironically, over the same period, the Chicago citygate spot price increased an identical $0.17 per MMBtu and also ended the week at $4.00 per MMBtu (up 4.4 percent).

In spite of generally mild fall temperatures prior to the arrival of the expected chillier weather, consumption posted a modest increase for the week. According to estimates from BENTEK Energy Services, LLC (BENTEK), domestic gas consumption increased by 3.0 percent over last week. The residential/commercial sector registered a double-digit percent increase while the industrial sector tallied a 1.8 percent increase. However, the power sector posted a generally offsetting 9.0 percent drop reflecting the light weather load at the end of last week.

In the midst of the week’s recovering consumption pattern and price turnaround, overall supply was off slightly. According to BENTEK estimates, the week’s overall average total nominal gas supply posted a 0.6 percent decrease from last week’s level. Domestic weekly dry gas production averaged 62.6 Bcf per day, 0.3 percent lower than the previous week. Domestic dry gas production now stands 7.3 percent above this time last year. The slight fall in this week’s dry gas production was amplified by a 6.0 percent decrease in Canadian imports which averaged 5.4 Bcf per day over the period. Canadian imports stand level with year-ago volumes for the same week. There were modest supply gains registered in the liquefied natural gas (LNG) arena during the week where imports came in at 767 million cubic feet (MMcf) per day but remain 10.0 percent below year-ago levels.

Storage

Working natural gas in storage rose to 3,716 Bcf as of Friday, October 21, according to EIA’s WNGSR (see Storage Figure). Following a net injection of 92 Bcf from the previous week, stocks are now 28 Bcf below last year and 158 Bcf above the 5-year average. The injection was much larger than the 5-year average injection of 47 Bcf and last year’s injection of 74 Bcf.

Another large build means that storage levels have nearly matched those of last year. Typically, the storage season is assumed to end at the close of October or early November. The East region tends to begin drawing on inventories before the other regions due to heating demand. If the relatively mild weather and high production levels continue, however, it would not be surprising to see injections continue well into November.

Temperatures during the week ending Thursday, October 20 averaged 58.0 degrees, 1.7 degrees warmer than normal and 1.1 degrees warmer than last year (see Temperature Maps and Data). Temperatures were above average in the Northeast and West but cooler than normal in the Midwest and much of the South. Weather was generally mild with the heating degree-days 17 percent below average for the week.

Other Market Trends

Kitimat LNG Receives Export License. Earlier this month, Canada’s National Energy Board (NEB) approved an application for KM LNG Operating General Partnership to export LNG from its proposed facility in Kitimat, British Columbia. The export license allows for export of up to 468 Bcf of natural gas per year over 20 years to Asian countries. Natural gas to supply the facility will be sourced from the Western Canada Sedimentary Basin. According to the NEB, this is the first LNG export license the board has considered since deregulation of the natural gas market in 1985. The terminal is a partnership between Apache Canada (the operator), EOG Resources Canada, and Encana. Construction on the facility is expected to begin in early 2012, with operations beginning in 2015. According to a recent BENTEK Energy analysis, the location of the Kitimat facility is optimally located for access to premium markets in Asia and could compete with new LNG projects in Australia.

• Natural gas prices posted modest net gains at most market locations across the lower 48 States. The Henry Hub spot price increased from $3.54 per million Btu (MMBtu) last Wednesday, October 12, to $3.58 per MMBtu yesterday, October 19. Intra-week trading showed strong rallies followed by quick retreats.
• At the New York Mercantile Exchange, the price of the near-month futures contract (November 2011) gained about 10 cents on the week from $3.489 per MMBtu last Wednesday to $3.586 per MMBtu yesterday.
• Working natural gas in storage rose to 3,624 billion cubic feet (Bcf) as of Friday, October 14, according to EIA’s Weekly Natural Gas Storage Report (WNGSR).
• After 2 weeks of double digit increases, the natural gas rotary rig count as of October 14, as reported by Baker Hughes Incorporated, rose by a modest 1 rig to 936. The oil rotary rig count, on the other hand, posted a gain of 10 to reach 1080.

Prices

Henry Hub prices posted only slight increases over the week. Although projections of significantly cooler temperatures in the Midwest and other portions of the country likely caused prices to rise at all points but one on Monday, they retreated at most points on Tuesday and Wednesday, with the Henry Hub price closing the report week out at $3.58 per MMBtu, only a slight increase over last Wednesday’s $3.54 per MMBtu. Monday’s rally saw gains at the Chicago citygate, Transcontinental’s Zone 6 (Transco Z6) point for delivery into New York, and the Henry Hub of 29, 31, and 23 cents, respectively. Although prices at Transco Z6 and the Henry Hub subsequently declined, the Chicago citygate price remained high, closing yesterday 2 cents above Monday’s closing price, likely due to forecasts of cold weather.

Overall demand increases over the week were offset by declines in gas consumed for electricity generation. Power burn fell by 2.9 percent over the week according to estimates from BENTEK Energy Services, LLC. The drop was mostly a result of declines in Texas and the Southeast, where cooler temperatures likely caused the pullback in demand. Increases in the other sectors more than offset the power generation declines, and total consumption, as reported by BENTEK, increased by 5.5 percent over the report week.

Demand increases were met largely by higher imports, predominately from Canada. Imports from Canada increased by 4.1 percent and averaged 5.6 billion cubic feet per day, while LNG imports grew by 22.2 percent and averaged 641 million cubic feet (MMcf)/day. According to BENTEK Energy estimates, the week’s average dry gas production showed only a 0.1 percent increase from last week’s level. Domestic dry gas production stands 7.6 percent above this time last year. Canadian imports are at present less than 1 percent below this time last year, while LNG imports, in spite of their large percentage gain this week, are 6.2 percent below this week last year.

At the New York Mercantile Exchange, the price of the near-month contract (November 2011) increased about 10 cents, from $3.489 per MMBtu last Wednesday to $3.586 per MMBtu yesterday. The price of the 12-month strip increased slightly, from $3.948 per MMBtu last Wednesday to $3.956 per MMBtu yesterday. All of the contracts in this year’s winter strip (November 2011–March 2012) settled below $4 per MMBtu on Wednesday.

Storage

Working natural gas in storage rose to 3,624 Bcf as of Friday, October 14, according to EIA’s WNGSR (see Storage Figure). Following a net injection of 103 Bcf from the previous week, stocks are now 46 Bcf below last year and 113 Bcf above the 5-year average. The injection was much larger than the 5-year average injection of 58 Bcf and last year’s injection of 93 Bcf.

Thus far, the shoulder season between summer electric power demand and winter heating demand has seen a series of very large builds driven by mild weather and high production. Last year, which also saw historically strong builds during the first two weeks of October, witnessed 183 Bcf of net injections. The 5-year average build for the first two weeks of the month is just 130 Bcf. This year, roughly 215 Bcf has been added to storage, a 41 percent increase over the average. Three of the last four weeks have seen triple digit builds.

Temperatures during the week ending Thursday, October 13 averaged 63.1 degrees, 4.1 degrees warmer than normal and 0.7 degrees warmer than last year (see Temperature Maps and Data). Temperatures were above average in every region except for the Mountain Region. Weather was generally mild with the warmest region, the West South Central, averaging 72.7 degrees and every region but the Mountain and New England Regions averaging at least 60 degrees. Heating degree-days were 49 percent below average for the week while cooling degree-days were just 7 percent above average.

Other Market Trends

CFTC Finalizes Position Limits Rules. On Tuesday, October 18, the Commodity Futures Trading Commission (CFTC) passed regulations on position limits for futures and swaps by a 3-2 vote. The regulations established limits on speculative positions in 28 commodities, including NYMEX Henry Hub Natural Gas, NYMEX Light Sweet Crude Oil, NYMEX New York Harbor Gasoline Blendstock, and NYMEX New York Harbor Heating Oil. The rule was implemented in response to the October 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, which requires the CFTC to establish speculative position limits.

• Natural gas prices posted net losses at most market locations across the lower 48 States. The Henry Hub spot price fell from $3.63 per million Btu (MMBtu) last Wednesday, October 5, to $3.54 per MMBtu yesterday, October 12. Despite overall decreases, intraweek trading showed some rallies, particularly near the end of the report week.
• At the New York Mercantile Exchange, the price of the near-month futures contract (November 2011) fell about 8 cents on the week from $3.570 per MMBtu last Wednesday to $3.489 per MMBtu yesterday.
• Working natural gas in storage rose to 3,521 billion cubic feet (Bcf) as of Friday, October 7, according to EIA’s Weekly Natural Gas Storage Report (WNGSR).
• The natural gas rotary rig count as of October 7, as reported by Baker Hughes Incorporated, rose by 12 to 935. This is the second consecutive double-digit weekly increase, and natural gas rigs are at their highest level since December 2010.

Prices

For the most part, moderate weather across most of the country helped to push prices downward. Power burn rose only slightly during the week, about 0.6 percent, according to estimates from BENTEK Energy Services, LLC. The increase in power burn, however, was offset by large declines in residential and commercial consumption, leading to an overall decline in consumption of about 3.3 percent. The Henry Hub spot price fell from $3.63 per MMBtu last Wednesday to $3.54 per MMBtu yesterday.

Though still posting net declines for the week, pricing points in California posted relatively large intraweek increases, as prices rallied during the back end of the report week. The relative price strength is likely due to the heat in Southern California; after falling from higher prices at the beginning of the report week, the Southern California Border Average price rose from $3.19 per MMBtu on Friday to $3.52 per MMBtu on Wednesday. Strength in demand in this region also is likely providing support for Rockies prices. Exports to Mexico fell during the week, by about 18 percent, possibly the result of increasing competition with supplies serving the California and Southwest markets.

Northeast prices also fell, and moderate weather and upcoming storage shut-ins could put more downward pressure on prices. The price at Transcontinental’s Zone 6 point for delivery into New York fell on the week from $3.87 per MMBtu to $3.79 per MMBtu. Imports to the Northeast from Canada stayed mainly flat, rising about 0.1 percent. Several storage facilities in the Northeast have scheduled shut ins for the second half of October which could lead to more downward pressure on spot prices in the region if demand remains moderate in the coming weeks.

Though rising slightly from the previous week, LNG sendout continued to languish. Sendout averaged just a little over 0.5 Bcf per day this week with the vast majority of sendout coming from the Everett terminal in New England and the Elba Island terminal in Georgia. As domestic supply has grown, the need for imports has been reduced substantially. Since 2009, several terminals have begun to re-export LNG cargoes, and, more recently, explore the option to add liquefaction capacity to export domestically produced natural gas. Earlier this month, Dominion Resources asked permission from the U.S. Department of Energy to export domestically produced natural gas from its Cove Point facility in Maryland.

At the New York Mercantile Exchange, the price of the near-month contract (November 2011) fell about 8 cents, from $3.570 per MMBtu last Wednesday to $3.489 per MMBtu yesterday. The price of the 12-month strip also fell, from $4.047 per MMBtu last Wednesday to $3.948 per MMBtu yesterday. All of the contracts in this year’s winter strip (November 2011–March 2012) settled below $4 per MMBtu on Wednesday. On October 12, 2010, the price of the November 2010 near month contract was $3.629 per MMBtu, and the 12-month strip was $4.248 per MMBtu.

Storage

Working natural gas in storage rose to 3,521 Bcf as of Friday, October 7, according to EIA’s WNGSR (see Storage Figure). Following a net injection of 112 Bcf from the previous week, stocks are now 56 Bcf below last year and 68 Bcf above the 5-year average. The injection was much larger than the 5-year average injection of 72 Bcf and last year’s injection of 90 Bcf.

This was the largest net injection since the week ending June 12, 2009. Coming on the heels of two other weeks with very large injections, this build shows that stocks are growing quickly during a period of mild weather. With production at very high levels, stocks were able to rapidly gain ground in the absence of much power sector demand and before major heating demand begins.

Temperatures during the week ending Thursday, October 6 averaged 67.7 degrees, 1.7 degrees cooler than normal and 0.3 degrees warmer than last year (see Temperature Maps and Data). Regionally, temperatures were mixed and mostly mild with every division averaging more than 54 but less than 70 degrees. All three divisions of the South Census Region as well as the Pacific, Middle Atlantic, and West North Central divisions were cooler than normal, but New England, the East North Central, and the Mountain divisions were warmer. Nationwide, heating degree-days were 11 percent above normal, but cooling degree days were down 35 percent.

Other Market Trends

Winter Fuels Outlook Projects Higher Natural Gas, Propane, and Heating Oil Expenditures this Winter. On October 12 EIA released the Short-Term Energy Outlook and Winter Fuels Outlook, which projects that expenditures for natural gas, propane, and heating oil will increase by 3 percent, 7 percent, and 8 percent, respectively, from last winter. Expenditures for electricity, on the other hand, are expected to fall slightly. Though the winter (October 1, 2011–March 31, 2012) is projected to be about 2 percent warmer than last winter, according to the National Oceanic and Atmospheric Administration, temperatures will vary widely by region. Among the highlights:

• Heating oil customers (80 percent of which are located in the Northeast) are expected to spend $193 more this winter and pay the highest average winter price on record (but lower than spikes reached in the summer of 2008 when crude oil prices spiked).
• Households heating with natural gas (about one-half of households in the U.S.) are expected to spend about $19 more this winter than last winter. The expenditure increase represents a 1-percent decline in consumption (due to warmer temperatures), more than offset by a 4-percent increase in prices.
• Propane customers will spend about 5 percent more this winter, with increases varying widely by region.
• Customers who use electricity for heating (about 37 percent of households) can expect to spend about $6 less this winter, with consumption declines more than offsetting slight price increases. About 62 percent of households using electricity for heating are located in the South.

• Like autumn leaves floating down to earth, natural gas prices dropped decidedly from their $4 support branch this past week. In a whirlwind of generally unsupportive market fundamentals, the Henry Hub price closed down 25 cents for the week to $3.63 per million British thermal units (MMBtu) on October 5.
• At the New York Mercantile Exchange (NYMEX), the November 2011 natural gas contract dropped nearly 23 cents per MMBtu to close at $3.570 per MMBtu over the week.
• Working natural gas in storage rose last week to 3,409 billion cubic feet (Bcf) as of Friday, September 30, according to the U.S. Energy Information Administration’s (EIA) Weekly Natural Gas Storage Report (WNGSR). The implied increase for the week was 97 Bcf, leaving storage volumes positioned 78 Bcf under year-ago levels.
• The natural gas rotary rig count, as reported September 30 by Baker Hughes Incorporated, rose by 11 to 923 active units and now stands only 39 units below last year. Meanwhile, oil-directed rigs fell by 11 to 1,060 units.

Prices

The movement in the Henry Hub day-ahead price mirrored the fall of other trading locations in this week’s cash market by slumping 6.4 percent from $3.88 per MMBtu the previous Wednesday to $3.63 per MMBtu yesterday. As the accompanying table shows, the Henry Hub cash price progressed in an unwavering downward trend every day of the week until yesterday when a modest rally occurred spawned by expectations of increasingly low overnight temperatures.

At the NYMEX, the November 2011 contract decreased 22.9 cents (6.0 percent) from $3.799 per MMBtu last Wednesday to $3.560 per MMBtu yesterday. The contract dropped 18.2 cents from Thursday through Monday on the higher-than-average triple-digit storage build last week, a rebounding gas-directed rig count, and fading weather loads—either cooling or heating.

Most trading locations responded in kind to upstream price signals lamenting lackadaisical weather prospects. Spot prices at Transcontinental Pipeline’s Zone 6 trading point for delivery into New York City which started the week at $4.13 per MMBtu showed a 26 cent price loss per MMBtu over the period (Wednesday to Wednesday) to close at $3.87 per MMBtu (down 6.3 percent). During the same period, the Chicago citygate spot price fell $0.27 per MMBtu and ended the week at $3.64 per MMBtu (down 6.9 percent).

In spite of the mild fall temperatures present over the past week, consumption registered a modest increase for the week. According to estimates from BENTEK Energy Services, LLC (BENTEK), domestic gas consumption increased by 1.2 percent over last week. The residential/commercial sector posted a double-digit percent increase while the industrial sector tallied a 2.2 percent increase. However, the power sector posted a generally offsetting 11.8 percent drop reflecting the light weather load.

In the midst of the week’s anemic consumption pattern and declining price environment, overall supply was also off modestly. According to BENTEK estimates, the week’s overall average total nominal gas supply posted a 0.5 percent decrease from last week’s level. Domestic weekly dry gas production averaged 62.5 Bcf per day, 0.7 percent lower than the previous week. Domestic dry gas production now stands 8.7 percent above this time last year. The slight fall in this week’s production was offset somewhat by a 1.7 percent increase in Canadian imports averaging 5.6 Bcf per day. However, Canadian imports remain 5.5 percent below year-ago volumes. Supply gains remained muted in the liquefied natural gas (LNG) arena during the week where imports came in at 476 million cubic feet (MMcf) per day and remain 34.2 percent below year-ago levels.

Storage

Working natural gas in storage rose to 3,409 Bcf as of Friday, September 30, according to EIA’s WNGSR (see Storage Figure). Following a net injection of 97 Bcf from the previous week, stocks are now 78 Bcf below last year and 28 Bcf above the 5-year average. The injection was much larger than the 5-year average injection of 74 Bcf and last year’s injection of 84 Bcf.

This was the second week in a row of very large builds. After spending most of the summer at a deficit to the 5-year average, stocks have rebuilt very quickly over the last several weeks as the hot weather has become milder. With production at very high levels, stocks were able to rapidly gain ground in the absence of much power sector demand and before major heating demand begins.

Temperatures during the week ending Thursday, September 29, averaged 67.7 degrees, 3.7 degrees warmer than normal and 2.9 degrees warmer than last week (see Temperature Maps and Data). Regionally, temperatures were higher than normal everywhere except the Midwest. The Northeast was the warmest relative to normal with New England 11.6 degrees warmer than normal and the Middle Atlantic 8.9 degrees warmer. These two regions would typically be starting to consume heating fuels such as natural gas as the weather turns colder, but heating degree-days last week were down over 90 percent from normal in each region.

Other Market Trends

Natural Gas Rig Count Rises to 923. The natural gas rotary rig count rose by 11 to 923 as of September 30, according to data reported by Baker Hughes Incorporated. This is the highest value since December 22, 2010. The oil rig count, on the other hand, fell by 11 during the week but it remains at a historically high level of 1,060. Compared to the same time a year ago, the natural gas rig count has dropped 4 percent, while the oil rig count has risen by 54 percent. The increase in oil rigs is likely related to increases in oil prices year over year. Though natural gas rigs have fallen year over year (and declined substantially from record highs in 2008), production has continued to rise. This is likely a combination of increases in associated production from the oil rigs, as well as increases in production per rig. Vertical rigs (including both oil and natural gas) rose during the week, from 609 to 617, their highest level since 2009. Horizontal rigs (also including both oil and natural gas) fell by 5 to 1,035.

• Natural gas spot prices at most market locations across the country this past week initially declined and then began to creep upwards as natural gas use for power generation increased. The upward trend was halted yesterday, as prices at nearly all points retreated, possibly due to forecasts for considerably colder weather. After declining from $3.78 per million British thermal units (MMBtu) last Wednesday to $3.72 per MMbtu on Thursday, the Henry Hub spot price increased to $3.92 per MMBtu on Tuesday and closed at $3.88 per MMBtu yesterday.
• At the New York Mercantile Exchange (NYMEX), the October 2011 contract rose from $3.73 per MMBtu last Wednesday to a high of $3.83 per MMBtu on Tuesday and closed out the month at $3.76 per MMBtu yesterday. The November contract, which decreased from $3.82 per MMBtu last Wednesday to $3.80 per MMBtu yesterday, moved into the near-month position.
• Working natural gas in storage rose to 3312 billion cubic feet (Bcf) as of Friday, September 23rd, according to EIA’s Weekly Natural Gas Storage Report (WNGSR).
• The natural gas rotary rig count remained steady at 912 as of September 23, holding at an 8-month high, according to data reported by Baker Hughes Incorporated. The oil rig count, on the other hand, rose by 9 to 1,071.

Prices

Prices at most trading locations oscillated over the report week, declining between last Wednesday and the weekend, then increasing through Tuesday and subsequently dipping on the last day of the report week. Although prices were up and down over the week, most closed higher than the preceding week. The Henry Hub price declined from $3.78 per MMBtu last Wednesday to a low for the report week of $3.72 per MMBtu on Thursday, increased to $3.92 per MMBtu on Tuesday and then declined, closing at $3.88 per MMBtu yesterday. Prices at Transcontinental Pipeline’s Zone 6 trading point for delivery into New York City fell from $4.03 per MMBtu last Wednesday to $3.91 per MMBtu on Friday, jumped to $4.20 per MMBtu by Tuesday, and then closed at $4.13 per MMBtu yesterday. Similarly, the Chicago citygate price declined from $3.88 per MMBtu last Wednesday to $3.80 per MMBtu on Thursday, then climbed to $3.98 per MMBtu Tuesday, only to reverse direction and fall to $3.91 per MMBtu yesterday.

Natural gas demand for power burn increased across the country during the report week. According to data from BENTEK Energy Services, LLC, gas burn for power increased overall by 11.1 percent, driven by increases in the Northeast and Southeast. Power burn in the Northeast rose by 28.0 percent, while the Southeast registered a 7.5 percent gain. Total demand was up by a much more modest 1.2 percent over the week. Supply remained flat, with production up by only 0.1 percent. Most of the increased demand was satisfied by imports from Canada, which increased by 5.1 percent. LNG imports rose by 17.8 percent and averaged 463 million cubic feet (MMcf)/day, while exports to Mexico jumped 32.2 percent and averaged 1460 MMcf/day over the week.

At the NYMEX, the November 2011 contract moved into the near-month spot, and dropped from $3.820 per MMBtu last Wednesday to $3.799 per MMBtu yesterday. The October contract closed at $3.759 per MMBtu yesterday, up only slightly from its 3.730 close last Wednesday. The 12-month strip (the average of the 12 contracts between November 2011 and October 2012) remained relatively steady over the week, closing at $4.133 per MMBtu last Wednesday and $4.136 per MMBtu yesterday.

Storage

Working natural gas in storage rose to 3,312 Bcf as of Friday, September 23, according to EIA’s WNGSR (see Storage Figure). Following a net injection of 111 Bcf from the previous week, stocks are now 91 Bcf below last year and 5 Bcf above the 5-year average. The injection was much larger than the 5-year average injection of 71 Bcf and last year’s injection of 73 Bcf.

Stocks have now surpassed the 5-year average for the first time since the week of April 15. While the East region’s deficit to the 5-year average shrank significantly, after a build that was 24 Bcf above normal, stocks remain 52 Bcf below the average. This shortfall is now more than offset by levels in the Producing and West regions, 54 Bcf and 3 Bcf above average respectively, after higher than average builds in both regions this week.

Temperatures during the week ending Thursday, September 22, averaged 64.9 degrees, 4.7 degrees cooler than last week (see Temperature Maps and Data). Temperatures were cool for this time of year, averaging 1.4 degrees colder than normal and 4.0 degrees colder than last year. Regionally, temperatures were higher than normal in the West, but cooler than average in most other areas of the country. As the weather begins to turn colder, natural gas use in the electric power sector is replaced by heating consumption. Cooling degree-days were 6 percent below normal, but heating degree-days were 35 percent above normal for the week.

Other Market Trends

Global Tightness in LNG Markets Draws Cargoes Away from the United States. Maintenance on LNG terminals and declines in production from major LNG exporting countries has led to current tightness in global LNG markets, according to recent reports from BENTEK Energy Services, LLC. Both Qatar and Trinidad have announced maintenance on facilities this fall, and, according to BENTEK, the Qatar maintenance could take 1 Bcf/d off the market through November. Prices in Asian markets, which are often much greater than U.S. prices, remain high, with reported prices in Japan averaging in the $17 per MMBtu range. U.S. LNG imports are expected to remain low, as low U.S. prices will not attract LNG onto the pipeline grid, but facilities capable of re-export may be further utilized.

Tennessee Gas Pipeline Approved to Begin Operations on Part of a Pipeline Addition in Marcellus. The Federal Energy Regulatory Commission (FERC) on Monday gave Tennessee Gas Pipeline approval to begin operating on one segment of its 300 Line project in the Marcellus Shale. The project will add seven looping segments to its existing pipeline. The project will add approximately 125 miles of pipeline in Pennsylvania and New Jersey. The segment FERC approved Monday is located in Bradford County, Pennsylvania, and the company hopes to have all segments online by November 1. The Tennessee project is one of many that have been planned for the Marcellus Shale, to support growth in production in the area.

• A touch of autumn in the air combined with hopes for the eventual return of winter was likely the catalyst enabling natural gas prices to recapture the $4 mark this week despite an environment of negative consumption fundamentals and continued strong production. At the New York Mercantile Exchange (NYMEX), the October 2011 natural gas contract advanced 9.9 cents per million Btu (MMBtu) to close at $4.039 per MMBtu over the week.
• The Henry Hub price oscillated in a similar but narrow range before closing up 5 cents for the week at $4.01 per MMBtu on September 14.
• Working natural gas in storage rose last week to 3,112 billion cubic feet (Bcf) as of Friday, September 9, according to the U.S. Energy Information Administration’s (EIA) Weekly Natural Gas Storage Report (WNGSR). The implied increase for the week was 87 Bcf, leaving storage volumes positioned 140 Bcf under year-ago levels.
• The natural gas rotary rig count, as reported September 9 by Baker Hughes Incorporated, fell by 3 to 892 active units. Meanwhile, oil-directed rigs were down 7 to 1,057 units.

Prices

At the NYMEX, the October 2011 contract increased 9.9 cents (2.5 percent) from $3.940 per MMBtu last Wednesday to $4.039 per MMBtu yesterday. The contract surged 15.4 cents over Tuesday and Wednesday in a possible mind set shift to hopes of more Winter-like loads occurring later in the future despite indications of continued robust short-term production and lack of near-term supporting weather loads.

The Henry Hub price echoed the week’s general cash market price increase to recapture the $4 handle by rising 1.2 percent from $3.96 per MMBtu the previous Wednesday to $4.01 per MMBtu yesterday. As the accompanying table shows, the Henry Hub cash price meandered in a narrow 3 to 4 cent range most of the week before advancing 9 cents the last two days. On Monday and Tuesday, the Henry Hub price was less than the NYMEX October futures contract which could have been an incentive to spur purchase of attractively-priced gas for storage and served to close the gap with the NYMEX futures price.

End-market natural gas prices generally followed the lead of their wholesale counterparts and responded in kind to upstream gyrations despite neutral weather prospects. The New York citygate price, which started the week at $4.20 per MMBtu showed a 3 cent price range until starting upward on Monday. The New York citygate price increased by $0.08 per MMBtu over the period (Wednesday to Wednesday) to close at $4.28 per MMBtu (up 1.9 percent). During the same period, the Chicago citygate price rose $0.13 per MMBtu and ended the week at $4.10 per MMBtu (up 3.2 percent).

In a swing to the approach of more benign fall temperatures, consumption registered a modest decline for the week. According to estimates from BENTEK Energy Services, LLC, domestic gas consumption decreased this week by 1.9 percent over last week. The power sector led the decrease with a loss of 4.1 percent, largely reflective of regions in Texas which finally returned to more seasonal temperatures. The residential/commercial sector posted a modest 0.2 percent decrease in consumption while the industrial sector also saw a token 0.1 percent decline.

In the midst of this week’s decreasing consumption yet narrow price environment, overall supply was up significantly. According to BENTEK Energy estimates, the week’s average total nominal gas supply posted a 3.3 percent increase from last week’s level. Domestic weekly dry gas production averaged 62.1 Bcf per day (up 3.3 percent) from the previous week. Domestic dry gas production now stands 7.5 percent above this time last year. The week’s production gain was further augmented by a 4.0 percent increase in Canadian imports averaging 5.2 Bcf per day. However, Canadian imports remain 16.8 percent below year-ago volumes. Any supply gains remained anemic in the liquefied natural gas (LNG) arena during the week where imports came in at 380 million cubic feet (MMcf) per day and remain 52.7 percent below year-ago levels.

Storage

Working natural gas in storage rose to 3,112 Bcf as of Friday, September 9, according to EIA’s WNGSR (see Storage Figure). Following a net injection of 87 Bcf from the previous week, stocks are now 140 Bcf below last year and 52 Bcf less than the 5-year average. The injection was less than last year’s build of 96 Bcf but larger than the 5-year average injection of 79 Bcf.

The East Region registered its fifth consecutive week of above average builds. The region’s deficit to the 5-year average continues to shrink after a build that was 7 Bcf above average. The East Region remains a significant 89 Bcf below the 5-year average. The Producing Region is now 37 Bcf above the 5-year average while the West Region is equal to the 5-year average after a slightly smaller than normal build.

Temperatures during the week ending Thursday, September 8, cooled off considerably, averaging 71.1 degrees, 3.7 degrees cooler than last week(see Temperature Maps and Data). Temperatures were typical of this time of year, averaging 0.9 degrees warmer than normal and 0.1 degrees warmer than last year. Regionally, temperatures were higher than normal in the West and Northeast, offset by some cooler than normal regions in the South and Midwest. Cooling degree-days were about 17 percent above average for the country as a whole.

Other Market Trends

BOEMRE Reorganization to be Completed in October. The Bureau of Ocean Energy Management, Regulation, and Enforcement (BOEMRE) will divide into two entities in October, according to notices released by the agency. This will complete a plan announced in May 2010 to divide the former Minerals Management Service (MMS) into three agencies (the first phase of the plan was completed a year ago with transfer of revenue collection functions). The revenue collection agency, the Bureau of Ocean Energy Management (BOEM), will be responsible for managing development of offshore resources, while the new Bureau of Safety and Environmental Enforcement (BSEE) will enforce safety and environmental regulations. The division of the agencies separates resource management from safety oversight and strengthens the role of environmental review in the agency. In May 2010, the MMS was reorganized and split into three entities: one that would handle revenue collection and royalty issues; a second to ensure responsible development of offshore resources; and a third to enforce safety and environmental regulations.

Natural Gas Rigs Drop for Third Consecutive Week. The natural gas rotary rig count fell by 3 to 892, according to data released on September 9 by Baker Hughes Incorporated. This is the third consecutive week natural gas rigs have fallen, though declines have been small each week. The oil rig count, which had risen for 19 consecutive weeks until the beginning of September, also fell this week, to 1,057. This number, however, is still historically very high. Rigs in all categories, horizontal, vertical, and directional (which include both natural gas and oil rigs), posted small declines week over week. Most states saw somewhat small changes in their rig counts, but Texas and Oklahoma were two notable exceptions. In Texas, the total rig count fell from 898 the week ending September 2 to 884 the week ending September 9. In Oklahoma, on the other hand, total rigs rose from 195 to 203, according to Baker Hughes.

• In the wake of Hurricane Irene (later downgraded to Tropical Storm Irene), Tropical Depression Lee moved into the Gulf, causing production shut-ins and across the board price increases last Thursday, September 1st. The Henry Hub spot price saw a 21 cent increase, jumping from $3.97 per million Btu (MMBtu) on Wednesday August 31st to $4.18 per MMBtu the following day. The impacts of the slow-moving storm were overshadowed, however, by significantly cooler weather, and prices declined steadily from their August 31 high over the next few days, closing at $3.93 per MMBtu on Tuesday. The threat of a new storm in the Gulf, Tropical Storm Nate, likely caused prices to rally slightly, with the Henry Hub spot price closing out the report week yesterday at $3.96 per MMBtu.
• At the New York Mercantile Exchange, the October 2011 contract lost ground overall, falling from $4.054 per MMBtu last Wednesday to $3.940 yesterday.
• Working natural gas in storage rose to 3,025 billion cubic feet (Bcf) as of Friday, September 2, according to EIA’s Weekly Natural Gas Storage Report (WNGSR).
• The natural gas rotary rig count fell for the second week in a row, declining by 3 to 895 as of September 2, according to data reported by Baker Hughes Incorporated. The oil rig count broke its 19th consecutive week of increases, falling by 5 to 1,064.

Prices

After jumping last Thursday in response to the threat imposed by slow-moving Tropical Storm Lee, prices at most trading locations fell through most of the remainder of the report week, as cooler temperatures across the country overshadowed impacts of Lee-related shut-in production. The Henry Hub price jumped from $3.97 per MMBtu last Wednesday to $4.18 per MMBtu on Thursday and then declined steadily, with the exception of a slight uptick at the end of the report week, closing at $3.96 per MMBtu yesterday. The price declines were likely the result of forecasts for cooler weather. Prices at Transcontinental Pipeline’s Zone 6 trading point for delivery into New York City followed a similar pattern (as did most of the rest of the country), jumping from $4.21 per MMBtu last Wednesday to $4.40 per MMBtu on Thursday and subsequently settling at $4.20 per MMBtu yesterday.

Cooler temperatures across the country, in addition to continued power outages following Hurricane Irene, dampened natural gas demand for power burn, with demand declining by slightly over 16 percent across the report period, according to BENTEK Energy Services, LLC. Fall-like conditions were especially apparent in the Midwest, and much of the South saw temperature declines accompany the rains brought by Lee. Over 6.4 million homes lost power during Hurricane Irene, and almost 600,000 homes along the east coast were still without power as of Friday, September 2. According to BENTEK, total consumption was down 6.1 percent, and supply was down 4.2 percent, a combination of a 3.6 percent decline in domestic dry gas production and a 10.9 percent drop in Canadian imports. LNG imports, on the other hand, rose by 4.7 percent and averaged 439 million cubic feet (MMcf) per day over the report week.

The October 2011 contract fell from $4.054 per MMBtu last Wednesday to $3.940 per MMBtu yesterday. After dropping 17.8 cents last Friday to a low for the week of $3.872 per MMBtu, yesterday’s $3.940 per MMBtu close represented a rebound of 2 percent from Friday’s low as the market evaluated whether Lee-related shut-ins and the threat imposed by Tropical Storm Nate, among other factors, were significant enough to move prices back to the $4 and above range. The 12-month strip (the average of the 12 contracts between October 2011 and September 2012) dropped from $4.431 on August 31 to $4.318 yesterday.

Storage

Working natural gas in storage rose to 3,025 Bcf as of Friday, September 2, according to EIA’s WNGSR (see Storage Figure). Following a net injection of 64 Bcf from the previous week, stocks are now 131 Bcf below last year and 60 Bcf less than the 5-year average. The injection was above last year’s build of 58 Bcf and equal to the 5-year average injection of 64 Bcf.

The East Region registered its fourth consecutive week of above average builds. The region’s deficit to the 5-year average is now in double digits after a build that was 11 Bcf above average. While the East Region remains a significant 96 Bcf below the 5-year average, this gap could close quickly in the shoulder months when heating and cooling demands are low.

Temperatures during the week ending Thursday, September 1, averaged 74.9 degrees, 3.1 degrees warmer than normal, and 0.9 degrees above last year (see Temperature Maps and Data). Temperatures were above normal in every region of the country. The West South Central Region was warmest at 87.3 degrees while New England was coolest at 68.3 degrees. Cooling degree-days were about 33 percent above average for the country as a whole.

Other Market Trends

Production Shut-Ins from Tropical Storm Lee Continue. As of September 7, 2011, oil and natural gas production was returning to normal, with personnel yet to return to 21 production platforms (3.4 percent of the total) and 4 rigs (5.7 percent). Currently, about 516,000 barrels of oil per day and 958 MMcf of natural gas per day are shut in, according to the Board of Ocean Energy Management, Regulation, and Enforcement (BOEMRE). At their peak, according to BOEMRE, about 2,900 MMcf of natural gas production per day (or 54.6 percent) and 859,000 barrels of oil production per day (or 61.4 percent) were shut in. BENTEK Energy noted that, even as all shut-in production returns (likely today), other constraints, including possibly damaged platforms and other unrelated maintenance projects, will likely put downward pressure on production.

Short-Term Energy Outlook Predicts Production Growth in 2011 and 2012. According to this month’s Short-Term Energy Outlook(STEO), released September 7, marketed natural gas production is expected to average 65.8 Bcf per day in 2011, a 4.0 Bcf per day (6.4 percent) increase over 2010. EIA expects that overall production will continue to grow in 2012, but at a slower pace, increasing 1.1 Bcf per day (1.7)

• Coming only a few days after last week’s earthquake, Hurricane Irene (later downgraded to Tropical Storm Irene) brought with it cooler weather and reduced electric power demand. Irene put downward pressure on prices, but most prices rallied on the last day of the report week. The Henry Hub spot price registered a net decline of 13 cents, falling from $4.10 per million Btu (MMBtu) last Wednesday to $3.97 per MMBtu yesterday.
• At the New York Mercantile Exchange, the October 2011 contract moved into the near-month position, and rose from $3.889 per MMBtu last Wednesday to $4.054 yesterday.
• Working natural gas in storage rose to 2,961 billion cubic feet (Bcf) as of Friday, August 26, according to EIA’s Weekly Natural Gas Storage Report (WNGSR).
• The natural gas rotary rig count fell by 2 to 898 as of August 26, ending a 3-week streak of increases, according to data reported by Baker Hughes Incorporated. The oil rig count, on the other hand, rose by 3 to 1,069, in its 19th consecutive week of increases.

Prices

Prices at most trading locations fell through most of the report week, then jumped on Wednesday. The Henry Hub price dropped from $4.10 per MMBtu last Wednesday to a low for the report week of $3.85 per MMBtu on Tuesday, and back up to $3.97 per MMBtu yesterday. The mid-week price declines resulted from forecasts for cooler weather and continued power outages from Hurricane Irene, which later was downgraded to Tropical Storm Irene. Decreasing every day of the report week but the last day, prices at Transcontinental Pipeline’s Zone 6 trading point for delivery into New York City dropped from $4.35 per MMBtu last Wednesday to $4.08 per MMBtu on Tuesday. This pattern was similar across the country.

Hurricane Irene dampened natural gas demand for power burn during the report week, and demand loss continues as power infrastructure is repaired. According to data from BENTEK Energy Services, LLC, gas burn for power fell about 3 percent during the report week. Total demand was down 0.8 percent, and supply remained flat, as slight production increases were offset by declines in Canadian imports. BENTEK expects demand loss from the storm will total about 2.8 Bcf total.

Two newly formed weather disturbances likely played a role in Wednesday’s price rally. Hurricane Katia, currently a Category 1 storm, might impact the U.S. east coast next week, but any projected path is still highly uncertain. The National Hurricane Center noted that Katia could become a major hurricane by the weekend. Meanwhile, a tropical system in the central Gulf of Mexico could become a tropical depression during the next 24 hours. Energy producers active in the area have been monitoring the storm and according to recent news reports have begun evacuating non-essential personnel from offshore platforms and have shut in small amounts of production.

The October 2011 contract moved into the near-month spot, and rose from $3.889 per MMBtu last Wednesday to $4.054 per MMBtu yesterday. The September contract closed at $3.857 per MMBtu on August 29, having lost 38.7 cents, or about 9 percent, during its tenure as the near-month contract. When the October contract settled yesterday at $4.054 per MMBtu, this was the first time in over two weeks that the near-month contract closed above $4 per MMBtu. The 12-month strip (the average of the 12 contracts between October 2011 and September 2012) rose from $4.421 on August 24 to $4.431 yesterday.

Storage

Working natural gas in storage rose to 2,961 Bcf as of Friday, August 26, according to EIA’s WNGSR (see Storage Figure). Following a net injection of 55 Bcf from the previous week, stocks are now 137 Bcf below last year and 60 Bcf less than the 5-year average. The injection was between last year’s build of 52 Bcf and the 5-year average injection of 60 Bcf.

The East Region registered its third consecutive week of above average builds. The August 26 deficit of 107 Bcf is still significant, but continued high production could quickly close this gap in the coming weeks if mild weather prevails. Hurricane Irene, while not as devastating as some feared, has knocked out power to thousands in the East Region and will likely increase the next week’s stock build by dampening power demand and lowering temperatures.

Temperatures during the week ending Thursday, August 25, averaged 75.7 degrees, 2.4 degrees warmer than normal, but 0.1 degrees below last year (see Temperature Maps and Data). Temperatures were equal to or above normal in every region of the country. The West South Central Region, including Texas, at 87.6 degrees was both the absolute hottest region and the hottest relative to its normal temperature for the fourth consecutive week. Cooling degree-days were about 23 percent above average for the country as a whole.

Other Market Trends

Demonstrated peak working gas capacity rises to 4,103 Bcf. On August 31, EIA released its most recent estimates of natural gas storage capacity and historical maximum storage volumes. As of April 2011, demonstrated peak working gas capacity (the sum of the highest monthly storage inventory level of working gas observed in each facility over the prior 5-year period) was 4,103 Bcf, a 1 percent increase from the same level the previous year. Design capacity (which represents the sum of a field’s working gas capacity, and is based on physical characteristics of the reservoir) rose to 4,388 Bcf, also an increase of 1 percent from the previous year’s level of 4,353 Bcf. The Producing Region was a major source of capacity increases, adding 43 Bcf (or 80 percent) of peak working gas capacity and 23 Bcf (or 66 percent) of working gas design capacity.

• Even an earthquake on Tuesday could not shake up most gas prices significantly for the week. However, the prospects of some near-term returning cooling load was likely the catalyst boosting overall cash market prices this week. The Henry Hub price increased 13 cents per million Btu (MMBtu) over the week (up 3.2 percent) to close at $4.10 per MMBtu on August 24.
• At the New York Mercantile Exchange (NYMEX), there was a 10.4 cent per MMBtu price spike on Tuesday following the East Coast earthquake but the September 2011 natural gas contract eventually gave most of the gain back and closed at $3.922 per MMBtu on Wednesday.
• Working natural gas in storage rose last week to 2,906 billion cubic feet (Bcf) as of Friday, August 19, according to the U.S. Energy Information Administration’s (EIA) Weekly Natural Gas Storage Report (WNGSR). The implied increase for the week was 73 Bcf, leaving storage volumes positioned 140 Bcf under year-ago levels.
• The natural gas rotary rig count, as reported August 19 by Baker Hughes Incorporated, rose by 4 to 900 active units. Meanwhile, oil-directed rigs were up 11 to 1,066 units, increasing the disparity between the two drilling targets.

Prices

At the NYMEX, the price response of the September 2011 contract diverged from the cash market over the week and decreased 1.1 cents (0.2 percent) from $3.933 per MMBtu last Wednesday to $3.922 per MMBtu yesterday. The contract surged 10.4 cents late in the day on Tuesday, likely over speculation as to the number of nuclear generating plants the East Coast earthquake may have removed from service along with pipeline outages. When news became clear on Wednesday about minimal infrastructure impacts, and with the looming threat of approaching Hurricane Irene possibly bring cooling rains and power outages to the East Coast thwarting natural gas consumption, this expiring contract (expires Monday, 8/29/2011) quickly gave back most of the prior day gain. To provide a longer-term perspective, this futures contract began life at $6.333 per MMBtu (11/29/2005) and posted a life-of-contract high price of $10.510 per MMBtu (7/1/2008) before closing yesterday below $4 per MMBtu.

The Henry Hub price echoed the week’s general cash market price increase by rising 3.2 percent from $3.97 per MMBtu the previous Wednesday to $4.10 per MMBtu yesterday on forecasts of returning cooling load to some areas. As the accompanying table shows, the Henry Hub cash price meandered in a narrow range most of the week before surging 13 cents the last two days following the earthquake and prospects for returning near-term cooling load.

End-market natural gas prices generally followed the lead of their wholesale counterparts and responded to moderating temperatures along the East Coast early in the week with a lack of direction until prospects of some returning cooling load reemerged. The New York citygate, which started the week at $4.20 per MMBtu showed a 3 cent price range until starting upward on Monday. The New York citygate increased by $0.15 per MMBtu over the period (Wednesday to Wednesday) to close at $4.35 per MMBtu (up 3.6 percent). During the same period, the Chicago citygate rose $0.14 per MMBtu and ended the week at $4.17 per MMBtu (up 3.5 percent).

Despite a respite to more normal seasonal temperatures over the weekend, consumption registered a modest increase for the week. According to estimates from BENTEK Energy Services, LLC, domestic gas consumption increased this week by 4.3 percent over last week. The power sector led the increase with a gain of 10.0 percent, mostly reflective of regions in Texas which remain in the grip of a summer heat wave. However, the weather factor was partially offset by the residential/commercial sector which posted a decrease in consumption. Likewise, the industrial sector also posted a small 0.2 percent consumption decline.

In the midst of this increasing consumption yet soft price environment, overall supply was up slightly. According to BENTEK Energy estimates, the week’s average total nominal gas supply posted a 0.7 percent increase from last week’s level. Domestic weekly dry gas production hovered around 62 Bcf per day (up 0.3 percent) from the previous week. Domestic dry gas production now stands 6.8 percent above this time last year. The week’s slight production gain was further bolstered by a 3.8 percent increase in Canadian imports averaging 5.7 Bcf per day. However, Canadian imports remain 16.6 percent below year-ago volumes. Supply gain remained anemic in the liquefied natural gas (LNG) arena during the week where imports came in just under 0.4 Bcf per day and remain 56.9 percent below year-ago levels.

Storage

Working natural gas in storage rose to 2,906 Bcf as of Friday, August 19, according to EIA’s WNGSR (see Storage Figure). Following a net injection of 73 Bcf from the previous week, stocks are now 140 Bcf below last year and 55 Bcf less than the 5-year average. This represents a very large build for this time of year and is almost twice the size of last year’s build of 38 Bcf. The injection is the second consecutive week of above-average builds.

The Producing Region registered a net build for the first time in six weeks. Consistently warm weather in the region has prevented the relatively large builds earlier in the year from continuing. Stocks in the Producing Region are now 55 Bcf above the 5-year average. For the first time since January, stocks in the West are now above the 5-year average level. The East Region remains 112 Bcf below the 5-year average, but this gap has been narrowing.

Temperatures during the week ending Thursday, August 18, averaged 74.6 degrees, 0.4 degrees warmer than normal, but 2.4 degrees below last week and 2.6 degrees below last year (see Temperature Maps and Data). Temperatures were close to normal in most regions with the West South Central showing the most deviation at 4.0 degrees above normal. In the Lower-48 as a whole, cooling degree-days were just 1 percent above normal but nearly 20 percent below last year.

Other Market Trends

FERC, NERC Release Task Force Report on February 2011 Southwest Power Curtailments. The Federal Energy Regulatory Commission (FERC) and the North American Electric Reliability Corporation (NERC) released a report on August 16 investigating the causes of rolling blackouts and natural gas shortages experienced by Southwest customers in February. According to the report, the majority of outages and shortages were weather-related, due to the extreme cold faced by much of the country during the beginning of February. The report includes recommendations for regulators, generators, and natural gas suppliers to ensure reliability during similar weather conditions in the future. According to the report, extreme cold reduced natural gas supply and caused unprecedented demand levels. The report recommended:

• Southwest States examine whether to require winterization plans for power plants.
• Generation owners and operators should ensure freeze protection elements, such as insulation, are properly maintained and inspected.
• Reliability coordinators should require information from generators about temperature limits for power units.
• State authorities in Texas and New Mexico should work with industry to determine if mitigation strategies exist for weather-related production shortages.

• Natural gas prices across the country declined this week, as relief from the high temperatures earlier this month continued to lessen air conditioning load. The Henry Hub spot price fell 12 cents from $4.09 per million Btu (MMBtu) last Wednesday, August 10, to $3.97 per MMBtu yesterday, August 17, falling below $4 for the first time since March of 2010. Prices at numerous points across the country also averaged below $4 yesterday.
• At the New York Mercantile Exchange, the price of the near-month contract (September 2011) fell by $0.070 per MMBtu, from $4.003 per MMBTU last Wednesday to $3.933 yesterday.
• Working natural gas in storage was 2833 billion cubic feet (Bcf) as of Friday, August 12, according to EIA’s Weekly Natural Gas Storage Report (WNGSR).
• The natural gas rotary rig count, as reported by Baker Hughes Incorporated, increased by 13 to 896 as of Friday, August 12. Oil rigs were also up considerably for the week, increasing by 24 to 1055.

Prices

With the exception of an almost across the board increase in prices on Friday, August 12, spot prices fell at most trading locations across the country this report week, with many ending the week below $4. The price increase on Friday was likely a response to the release of the storage report showing below-expected builds. The Henry Hub spot price averaged $3.97 per MMBtu yesterday, its lowest level since March of 2010. Northeast prices fell during the week, but in general remained above $4, with prices at Transcontinental Pipeline’s Zone 6 pricing point for delivery into New York City declining during the report week from $4.41 per MMBtu last Wednesday to $4.20 yesterday.

Declining temperatures this week led to a considerable drop in consumption of natural gas for power generation. Power burn fell almost 19 percent week over week, according to data from Bentek Energy Services, LLC. Supply declined slightly under 1 percent during the week as declines in LNG and Canadian imports offset ever so slight production increases. Dry production increased 0.2 percent from the previous week, while Canadian imports fell 10.4 percent and LNG imports declined by over 30 percent, with LNG imports averaging only 314 million cubic feet (MMcf) per day this week.

At the New York Mercantile Exchange, the price of the near-month contract (September 2011) fell by $0.070 per MMBtu, from $4.003 last Wednesday to $3.933 yesterday. The price of the 12-month strip (the average of the 12 contracts between September 2011 and August 2012) fell about 2 percent on the week, from $4.371 per MMBtu last Wednesday to $4.303 per MMBtu yesterday.

Storage

Working natural gas in storage rose to 2,833 Bcf as of Friday, August 12, according to EIA’s WNGSR (see Storage Figure). Following a net injection of 50 Bcf from the previous week, stocks are now 175 Bcf below last year and 73 Bcf less than the 5-year average. The injection marks the end of five consecutive weeks of below-average builds. Last year’s build was just 28 Bcf and the 5-year average build is 43 Bcf.

The Producing Region registered a net withdrawal for the fifth consecutive week. Consistently warm weather in the region has prevented the relatively large builds earlier in the year from continuing. Stocks in the Producing Region are now just 50 Bcf above the 5-year average. Stocks in the West are now 3 Bcf below the 5-year average level; however, they have built faster than average each week since June 10th. The East Region is 120 Bcf below the 5-year average.

Temperatures during the week ending Thursday, August 11, averaged 77.0 degrees, 2.1 degrees warmer than normal, but 2.3 degrees below last week (see Temperature Maps and Data). Temperatures were above average in all Census divisions except the Pacific. The West South Central was warmest at 86.1 degrees, 6.1 degrees above average. Cooling degree-days were about 18 percent above normal nationwide.

Other Market Trends

ERCOT Contracts with Power Generation Owners to Add Additional Capacity. The Electric Reliability Council of Texas announced temporary contracts through October with two power generation owners to bring back online four previously mothballed natural gas-fired generators in cases of extreme heat. Garland Power and Light and NRG Energy each own two of the generators, which total about 400 megawatts. The generators will only be brought online if necessary to prevent extreme measures such as rolling blackouts. Due to extreme heat this summer, electricity use in Texas has been exceptionally high, and increasing demand for energy has put stress on generators within the ERCOT area. ERCOT also noted that if extreme drought conditions in the State continue, it could lead to outages because of power plant cooling water issues. More information is available at: http://www.ercot.com/news/press_releases/show/424

Angola Set to Export LNG in 2012. EIA released a Country Analysis Brief on Angola this week, an OPEC member country and the second largest crude oil producer in Africa after Nigeria. Angola currently vents or flares most of its natural gas (which is associated with oil production), but is expected to soon begin exporting it and using a small amount for domestic consumption. Chevron and Sonangol, Angola’s national oil company, are currently building the country’s first LNG export terminal, which is expected to begin operations by 2012. The terminal will process 1.1 billion cubic feet of associated gas per day.