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Overview:

(For the Week Ending Wednesday, March 21, 2012)

• Despite record-warm March temperatures and the first storage injection of 2012, natural gas prices rebounded slightly this week. The Henry Hub price closed at $2.21 per million British thermal units (MMBtu) on March 21, up 8 cents for the week.
• At the New York Mercantile Exchange (NYMEX), the April 2012 natural gas contract rose 7.6 cents per MMBtu for the week to close at $2.360 per MMBtu.
• Working natural gas in storage rose slightly last week to 2,380 billion cubic feet (Bcf) as of Friday, March 16, according to the U.S. Energy Information Administration’s (EIA) Weekly Natural Gas Storage Report (WNGSR). An implied storage build of 11 Bcf for the week was the first net injection in 2012, positioning storage volumes 766 Bcf above year-ago levels.
• The natural gas rotary rig count, as reported March 16 by Baker Hughes Incorporated, decreased by 7 to 663 active units. Meanwhile, oil-directed rigs increased by 21 to 1,317 units, continuing the divergence between the two drilling objectives.

Prices:

Movement in the Henry Hub day-ahead price reflected a widespread rebound in market prices in this week’s cash market by rising 3.8 percent, from $2.13 per MMBtu the previous Wednesday to $2.21 per MMBtu yesterday. As the Spot Prices tab on the left shows, the Henry Hub cash price hit its low last Friday at $2.01 per MMBtu. On the same day, several pricing points dipped below the $2 mark. Prices then rebounded modestly for the rest of the week, potentially driven by storage injection demand.

At the NYMEX, the April 2012 contract rose from $2.284 per MMBtu last Wednesday to $2.360 per MMBtu yesterday, an increase of 7.6 cents (3.3 percent). The April 2012 contract led the turnaround in the futures market following last Thursday’s low. The 3-Month Strip (average of April-May-June contracts) also reflected the price reversal with a 1.9 percent gain for the week.

Nearly all downstream trading locations registered higher prices despite decreased 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 $2.21 per MMBtu , showed a $0.09 per MMBtu price gain over the week (Wednesday to Wednesday) to close at $2.30 per MMBtu (up 4.1 percent). Over the same period, and experiencing similar weather drivers, the Chicago citygate spot price registered a 9 cent per MMBtu price gain (from $2.12 per MMBtu last Wednesday), ending the week at $2.21 per MMBtu (up 4.2 percent) and at parity with Henry Hub prices.

In the midst of record-high March temperatures throughout most of the country during the past week, consumption decreased due to an absence of heating load. According to estimates from BENTEK Energy LLC (Bentek), domestic natural gas consumption fell by 9.5 percent from last week. The residential/commercial sector led the decrease with a 25.0 percent week-over-week loss, while the industrial sector registered a 4.4 percent loss. The power sector posted a 3.6 percent increase due to a record level of nuclear power plant outages and weather in isolated locations being warm enough to trigger early cooling loads.

Total supply was essentially flat for the week despite a small increase in dry gas production. According to Bentek estimates, the week’s average total natural gas supply posted a 0.1 percent increase from last week’s level, led by a modest increase in dry gas production. Domestic weekly dry gas production averaged 63.8 Bcf per day, 0.8 percent higher than the previous week and 6.5 percent above this time last year. The increase in this week’s dry gas production was offset by a 9.7 percent decrease in imports from Canada, which averaged 4.4 Bcf per day over the period. Imports from Canada stand 6.9 percent below year-ago volumes for the same week. There were upward supply increases of 17.0 percent registered in the liquefied natural gas (LNG) arena during the week, where sendout averaged 417 MMcf per day; however, sendout volumes remain 55.0 percent below year-ago levels.

more price data

Storage

Working natural gas in storage increased to 2,380 Bcf as of Friday, March 16, according to EIA’s WNGSR. This represents an increase of 11 Bcf from the previous week, the first net injection in 2012. Over the past 19 years of reported data, this is the 5th time that the first net injections have occurred as early as the 2nd to 3rd week in March. Both the 5-year average and year-ago stock changes for the week were implied net withdrawals of 17 Bcf and 20 Bcf, respectively. Inventories in the East Region posted a decline of 10 Bcf (a 0.9 percent decline from the previous week’s level) while in the Producing Region working gas stocks showed a net injection of 20 Bcf (a 2.1 percent increase). Stocks in the West Region posted a slight increase of 1 Bcf.

Stocks were 835 Bcf higher than the 5-year average level of 1,545 Bcf and 766 Bcf higher than last year at this time. Inventories in the Producing Region remain 373 Bcf (60.9 percent) above the region’s 5-year average of 612 Bcf . Stocks in the East and West Regions are also above their 5-year averages by 356 Bcf (51.4 percent) and 107 Bcf (44.8 percent), respectively. Total working gas is above the 5-year historical range, 54.0 percent above the 5-year average, and 47.5 above last year’s level.

As of this week, the WNGSR will provide new breakouts for inventory levels at salt cavern and nonsalt cavern facilities in the Producing Region. Working gas stocks in the Producing Region, for the week ending March 16, 2012, totaled 985 Bcf, with 232 Bcf in salt cavern facilities and 752 Bcf in nonsalt cavern facilities. Working gas stocks increased 9 Bcf in the salt cavern facilities and increased 9 Bcf in the nonsalt cavern facilities, since March 9. An historical series of the salt and nonsalt subtotals of the Producing Region, dating back to January 7, 2011, is available for download at: wngsr_producing_region_salt.xls. This new breakout of regional natural gas stocks should help analysts assess more comprehensively the relationship between inventory changes and types of storage facilities.

Temperatures during the week ending March 15 were 8.9 degrees warmer than the 30-year normal temperature and 6.6 degrees warmer than the same period last year. During the week all regions were warmer than normal, particularly the East North Central and West North Central Regions in the Midwest averaging 14.3 and 14.1 degrees warmer than normal, respectively. Heating degree-days nationwide were down 38.7 percent from normal and 30.7 percent from last year.

Source: Spectra Energy

Weekly natural gas rig count and spot Henry Hub

active rigs$ per MMBtu

Source: Baker Hughes

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