Gas price volatility on a percentage basis was down in 2007 from levels seen in the previous five years on growth in domestic production and imports of liquefied natural gas (LNG). The Henry Hub spot price was up from the previous year, but the average annual wellhead price was slightly lower, according to the Energy Information Administration (EIA).
In “Natural Gas Year-In-Review 2007,” EIA said gas price volatility as measured by relative price fluctuations decreased to its lowest level since 2002. On a dollar basis, the difference between the yearly minimum and maximum price during 2007 was $3.81/MMBtu, significantly less than the $6.25/MMBtu seen in 2006 and the $9.87/MMBtu seen in 2005. The volatility figures were derived from price data provided by NGI‘s Daily Gas Price Index.
“The return of relative market stability also was apparent in the increased consumption of natural gas during the year as lack of major supply disruptions and lower prices led to higher total consumption for the first time in three years,” EIA said.
The annual average Henry Hub spot price of $6.97/MMBtu was 3.5% higher than the 2006 price of $6.73/MMBtu. However, the annual average wellhead price of $6.39/Mcf was slightly less than the $6.40/Mcf seen in 2006. Monthly wellhead prices ranged between $5.61/Mcf and $6.98/Mcf, remaining consistently higher than the previous year’s low of $5.09/Mcf seen in October.
Most end-use sectors saw significant price decreases for the first time since 2002. The 2007 residential gas price was 5.4% less than the 2006 price of $13.75/Mcf but remained above the 2005 average price of $12.70/Mcf. The commercial and industrial sectors saw price decreases of 5.7% and 3.3%, respectively, while the electric power sector saw a 2.6% increase.
Total U.S. gas consumption increased by 6.2% last year to 23 Tcf, compared with 21.7 Tcf in 2006. Significant increases were seen in all sectors except industrial, where consumption increased a modest 2.1%. Residences consumed 8.2% more in 2007 than 2006. The power and commercial sectors consumed 9.9% and 6.1% more, respectively.
“In addition to the continued construction of natural gas-fired power plants in 2007, which totaled 10,988 MW of net peak capacity, other factors behind the increase in natural gas use in the electric power sector included the increase in natural gas use at dual-fired plants,” EIA said. “According to Bentek Energy LLC, fuel switching by dual-fired plants increased by an average of 31% in 2007, adding 0.5 Bcf/d of incremental consumption. Overall, Bentek estimated that natural gas-fired power plants (including dual-fired plants) consumed 13% more natural gas in 2007, which amounted to an incremental 2.1 Bcf/d for the year.”
EIA found that increased gas production onshore offset weaker offshore production. “Marketed natural gas production in 2007 was 2.9% higher than in 2006, reaching 20 Tcf,” EIA said. “The increase over the previous year’s production level was mainly driven by an increase in onshore production as gains in the Barnett Shale and Rocky Mountain region offset the decrease in the federal Gulf of Mexico production during the year.”
Playing a larger role in Gulf of Mexico gas production is the deepwater, EIA noted. In July, the Independence Hub production platform came on-line, operating at the greatest water depth in the world with the world’s largest production capacity (see NGI, Sept. 10, 2007). “The Independence Hub underscores the importance of deepwater prospects in domestic natural gas production as a record number of drilling rigs operated in the Gulf of Mexico’s deepwater in 2007, despite the decline in overall offshore drilling,” EIA said. “According to the Minerals Management Service, more than half of the active natural gas leases in the Gulf of Mexico are in water depths greater than 1,000 feet. In 2006, the latest year for which data are available, 40% of the natural gas produced in the Gulf of Mexico region originated from deepwater leases.”
Last year saw record high net imports of natural gas to the United States, according to EIA. Net imports reached 3,729 Bcf, an increase of about 267 Bcf, or 7.7%, over 2006. Contributions came from both pipeline imports from Canada and LNG imports from overseas. The volume of gas imported continued to equal about 16% of domestic consumption, a ratio that has held relatively stable for the last nine years, EIA said.
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