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U.S. Energy Department Natural Gas Update for April 20 (Text)

Following is the text of the weekly natural gas update as released by the U.S. Department of Energy in Washington D.C.:

Natural gas prices rose at most market locations during the week, as consumption increased. The Henry Hub spot price increased 19 cents from $4.14 per million Btu (MMBtu) on Wednesday, April 13 to $4.33 per MMBtu on Wednesday, April 20.

Futures prices behaved similar to spot prices; at the New York Mercantile Exchange, the price of the near-month natural gas contract (May 2011) rose from $4.141 per MMBtu to $4.310 per MMBtu.

Working natural gas in storage rose to 1,654 billion cubic feet (Bcf) as of Friday, April 15, according to EIA’s Weekly Natural Gas Storage Report (WNGSR).

The natural gas rotary rig count fell by 4 to 885 as of Friday, April 15, according to data reported by Baker Hughes Incorporated.

The West Texas Intermediate crude oil spot price rose on the week from $106.60 per barrel last Wednesday to $110.84 per barrel yesterday.

NYMEX Natural Gas Futures Near-Month Contract Settlement Price, West Texas Intermediate Crude Oil Spot Price, and Henry Hub Natural Gas Spot Price Graph

Prices

Natural gas prices rose at most market locations, likely the result of relatively cool temperatures and increased consumption from the previous week. At the Henry Hub, prices rose about 5 percent, from $4.14 per MMBtu to $4.33 per MMBtu. Price patterns were similar throughout the rest of the lower 48 States, with price increases ranging from 8 cents per MMBtu (at the Southern California City Gate) to 37 cents per MMBtu (at the Chicago City Gate). Currently, Henry Hub prices are about 10 percent higher than their level of $3.93 per MMBtu one year ago.

Cold weather was particularly prevalent in the northern half of the United States, as spring weather retreated in the Midwest, the Pacific Northwest, and the Midcontinent area. At the Chicago City Gate prices rose from $4.22 per MMBtu to $4.59 per MMBtu, as the area received snow fall earlier this week. Detroit and other areas of the Upper Northwest also saw mid-April snow showers, and raising prices. Canadian imports to the Midwest increased almost 20 percent from the previous week, according to data from BENTEK Energy. In the Pacific Northwest, temperatures also were more winter-like than spring-like but, according to Bentek, demand was met through storage withdrawals rather than increased inflows. Canadian pipeline imports to the West region actually fell slightly on the week.

Overall consumption this week rose by close to 6 percent, according to BENTEK data. The bulk of the increase came from the residential and commercial sectors, where consumption rose 14.2 percent, no doubt a reflection of the weather. Compared to the same week last year, total consumption was up 16.4 percent. Supplies this week were robust, increasing about 1 percent from the previous week and 4 percent from the same week last year, according to BENTEK data. Production rose slightly from the previous week, and is more than 6 percent greater than it was during the comparable week last year.

Spot Prices

Futures prices also rose during the week. At the NYMEX, the price of the near-month natural gas contract (May 2011) rose from $4.141 per MMBtu last Wednesday to $4.310 per MMBtu yesterday. The price of the 12-month strip (the average of the 12 contracts between May 2011 and April 2012) rose about 2 percent from $4.555 on Wednesday, April 13 to $4.665 yesterday.

Storage

Working natural gas in storage rose to 1,654 Bcf as of Friday, April 15, according to EIA’s WNGSR (see: http://tonto.eia.doe.gov/oog/info/ngw/storagefig.html). The 47- Bcf net injection leaves stocks slightly above the 5-year (2006- 2010) average of 1,631 Bcf, but 165 Bcf below last year’s level of 1,819 Bcf. This is the first week to see builds in all three regions.

Storage built in the East Region for the second week in a row. Still, stocks in the East are 74 Bcf below the 5-year average, and 172 Bcf below last year. A run of unusually cold weather prolonged significant withdrawals and delayed injections to the East Region. This contrasts with the Producing Region which now sits 128 Bcf above the 5-year average.

Temperatures in the lower 48 States during the week ending April 14 averaged 55.6 degrees, 3.9 degrees warmer than normal and 0.9 degrees warmer than last year. The National Weather Service’s degree-day data show that temperatures were above average everywhere except in the West (see Temperature Maps and Data http://tonto.eia.doe.gov/oog/info/ngw/maps.html). Heating degrees were about 18 percent lower than normal for the week. The East South Central Region saw the highest relative temperatures at 8.3 degrees above normal. The Pacific Region was the coldest relative to normal at 5.3 degrees below the historical average.

Other Market Trends

DOE Office Announces Success in Water Treatment at Marcellus Shale Production Site: The Department of Energy’s Office of Fossil Energy (FE) announced favorable results from a demonstration project turning wastewater from drilling sites into clean water. With water resources a key concern in natural gas production growth in shale formations such as the Haynesville and Marcellus shales, FE, which is managing the project through the National Energy Technology Laboratory (NETL), said its research could have an important application in reducing potential environmental impacts associated with future natural gas production. In cooperation with Altela Inc., FE tested a water desalination system at BLX, Inc.’s Sleppy well site in Indiana County, Pennsylvania. During nine months of operation, the unit treated 77 percent of the water stream onsite, providing distilled water as the product. The clean water produced at the demonstration site was suitable for use by well operators for additional stimulations and was also suitable to be discharged to surface waterways. As a result of the DOE demonstration project, numerous units of the water desalination system have been sold and installed in Williamsport, Pennsylvania, to treat approximately 100,000 gallons per day of produced and flowback water from hydraulic fracturing. The Altela demonstration was one of nine research projects on management of wastewater. Through the nine projects, NETL is developing environmental tools and technologies to improve management of water resources. Several additional demonstrations focusing on other water treatment technologies will be conducted during the remainder of fiscal year 2011.

Energy Production Remains Abundant in Canada. On April 19 EIA released a Country Analysis Brief (CAB) on Canada (http://www.eia.gov/countries/cab.cfm?fips=CA), the United States’ largest trade partner and most significant source of energy imports. According to the CAB, Canada ranked fifth in total energy produced in 2008, generating 19.11 quadrillion Btu of primary energy. Oil reserves are abundant in Canada, ranking third globally with 175.2 billion barrels of proved oil reserves. Oil is produced primarily in the Western Canada Sedimentary Basin, Alberta?? oil sands, and offshore oil fields in the Atlantic. Oil production in 2010 averaged 3.46 million barrels per day. Proved natural gas reserves totaled 61.95 trillion cubic feet (Tcf) as of January 2011, as Canada ranks third in production of dry natural gas. A robust natural gas pipeline network links Canadian supplies to domestic markets and to the lower 48 States. Recently, Canada’s National Energy Board approved a 745-mile natural gas pipeline from Canada’s Beaufort Sea to Northern Alberta, where it would be able to join other pipelines. Conventional production of natural gas in the Western Canada Sedimentary Basin are in decline, but unconventional methods, such as drilling in shale formations, show promise. While the United States has traditionally been the market for energy exports from Canada, Asian countries also are seeking access to Canada’s oil and natural gas supplies. More CABs are available at: http://www.eia.gov/countries/ <http://www.eia.gov/countries/

Natural Gas Transportation Update

Pacific Gas and Electric Company (PG&E) this week announced the first in a series of hydrostatic pressure tests it will perform on a number of gas transmission pipeline segments throughout its pipeline system. The work is part of the company’s effort to pressure test or replace about 150 miles of pipeline segments in high consequence areas that have characteristics similar to the pipeline involved in the tragic accident in San Bruno, California on September 9, 2010. The first pressure tests will take place in Mountain View and Antioch, California in May. The company also announced that is has already begun sending informational letters and safety brochures to 2.5 million homeowners and businesses located within about 2,000 feet of a natural gas transmission pipeline.

Rockies Express Pipeline Company this week announced plans for maintenance at its compressor station in Lost Creek, Wyoming, for May 10-11. During the maintenance period, the receipt capacity at the station will be reduced to 130 million cubic feet (MMcf) per day. Flows through the meter from production in the Green River-Overthrust basin have occasionally reached almost 150 MMcf per day this year. If production in the Green River-Overthrust basin increases between now and May, Rockies Express Pipeline (REX) eastbound flows could be reduced slightly.

With forecasts of high temperatures in the low 90s in Florida, Florida Gas Transmission Company, LLC is expecting higher demand for natural gas off its system. As a result, the pipeline company on Tuesday, April 19, notified customers that it has set a tolerance for negative daily imbalances at 25 percent.

To contact the reporter on this story: Terry Barrett in Washington at tbarrett1@bloomberg.net

To contact the editor responsible for this story: Alex Tanzi at atanzi@bloomberg.net

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