Natural Gas

Overview:

On Friday, spot gas traded at the Henry Hub for $2.20 per MMBtu, marking no change from the price on the previous Friday. Last week spot prices at the Henry Hub traded within a tight range of $2.14-$2.20 per MMBtu. Temperatures in much of the country returned to above normal in the second half of the week and the National Weather Service's (NWS) latest 6-to 10-day forecast called for this pattern to continue through the weekend and all of this week. (See Temperature Map) (See Deviation Map) This dominant pattern of above normal temperatures has resulted in heating degree days thus far this winter that are 16 percent lower than normal. At the NYMEX, the settlement price for the March contract ended the week up almost 5 cents at $2.191 per MMBtu. Natural gas stocks remained well above last year's level as estimated net withdrawals were 82 Bcf during the last week of January. The spot price for West Texas Intermediate (WTI) crude oil moved down 15 cents last week and ended Friday trading at $20.25 per barrel or $3.49 per MMBtu.

Prices:

After reaching a weekly low of $2.14 per MMBtu at mid week, the spot price at the Henry Hub returned to the level seen at the end of the previous week when it ended trading on Friday at $2.20. The 6-cent gain in prices from mid week though small was generally unexpected in the face of prevailing market conditions. These factors include warmer-than-normal temperatures, sluggishness in the U.S. economy, and far above average stock levels. However, one factor possibly behind the upward drift in prices late last week according to some market observers is that some marketers and local distribution companies (LDCs) were in short positions going into February and found it necessary to improve their supply situation during the first week of the month. In any event, prices on both the spot and futures market are well below levels recorded early in January 2002 and considerably lower than those of last year at this time. For example, on February 8, 2001, the Henry Hub spot price was $6.25 per MMBtu, Chicago citygate $6.52, New York City $6.69, SoCal $12.94, and the NYMEX March contract settled at $6.158.

Storage:

Net withdrawals of natural gas from storage were 82 Bcf for the week ended February 1 according to the American Gas Association (AGA). This is the lowest that net withdrawals have been for the report week in the entire weekly series since it began in 1994. Net withdrawals for the week were nearly 22 percent less than last year, and nearly 45 percent less than the 5-year average during the report week. Warmer-than-normal temperatures across much of the country likely accounted for the below average withdrawals. Total U.S. gas-weighted heating degree days were almost 27 percent below normal on average for the last week of January. In the East consuming region, where heating degree days were more than 32 percent below normal, net withdrawals were 33 percent below the 5-year average. Likewise, in the Producing region, heating degree days were 35 percent below normal, and withdrawals were almost 45 percent below the 5-year average. However, in the West consuming region, where heating degree days were more than 5 percent above normal, net withdrawals were well above the 5-year average. Natural gas in storage was 1,024 Bcf greater than last year and 37 percent greater than the 5-year average for the same report week. (See Storage Figure)

Other Market Trends:

EIA released its Short-Term Energy Outlook (STEO) for February on Wednesday, February 6. According to the STEO, natural gas market conditions are not favorable for strong price growth in the near term in part because of the lack of heating demand, the weak economy, and the resultant large natural gas storage levels this winter. Spot wellhead prices are currently averaging around $2.00-$2.20 per thousand cubic feet, or about one-quarter of what they were this time last year when prices at the wellhead reached record highs. EIA projects that by the end of the heating season, which is less than 2 months away, working gas in storage will be double the level at the end of last March. Consequently, natural gas wellhead prices will fall throughout the latter part of winter and continue to decline though the spring and early summer. For the year 2002, assuming normal weather and barring any major supply disruptions, the annual average natural gas price is projected to be $1.86 per thousand cubic feet, or less than half of last year's price.

Summary:

Spot and futures prices moved up at the end of last week although market demand appeared to remain weak. In addition, overall stock levels continue to be well above average after the lowest estimated weekly withdrawal total since December 21.