Natural Gas

Overview:

The spot price of natural gas moved up most days since last Wednesday, April 17, as prices at the Henry Hub reached $3.63 per MMBtu on Tuesday — the highest price since April 3, 2002. The recent period of both warmer-than-normal weather east of the Rockies and colder-than-normal temperatures in the West resulted in above normal weather-related demand. The upward price trend reversed itself at all major market locations yesterday (4/24/02), as prices declined generally between 10 to 15 cents per MMBtu with prices at the Henry Hub declining 10 cents to $3.53. On the NYMEX, the settlement price for May delivery, which had increased almost every day since April 16, peaked on Tuesday, then declined sharply in yesterday's trading-moving down over 17 cents-to settle at $3.419 per MMBtu. Net additions to storage were estimated to have been 69 Bcf in the third week of April, well above the previous 5-year average. The spot price for West Texas (WTI) crude oil increased to $26.28 per barrel, or $4.47 per MMBtu.

Prices:

Spot prices at all major natural gas market locations, which are trading at higher levels than those prevailing at the end of last week, declined yesterday (4/24/02), reversing the recent increases. Prices declined between 10 and 15 cents per MMBtu at a majority of natural gas markets. At the Henry Hub, prices moved down 10 cents to $3.53, while at citygate locations in Chicago and New York City, prices traded on Wednesday at $3.55 and $3.85 per MMBtu, respectively. Temperatures have returned to a more seasonal pattern in much of the country this week, reducing weather-related demand from levels of last week. Trading points in the Rocky Mountain region reported declines on Wednesday of 20 to 30 cents per MMBtu at several market locations, where reported prices ranged between $2.35 and $2.63 per MMBtu. Demand for gas in that region and in northern California continued to be soft as PG&E projected that linepack would stay at its present high level.

On the NYMEX, the near-month contract for May delivery, which reached a recent high of $3.596 per MMBtu on April 22, settled down over 17 cents at $3.419 per MMBtu on Wednesday, April 24. The May contract closes tomorrow (4/26/02) and barring any unforeseen event should end trading well below last year's final price for the May contract of $4.981 per MMBtu. In addition, prices for all NYMEX contracts through the remainder of the year declined to below $4.00 per MMBtu as yesterday's (4/24/02) settlement prices ranged from May's $3.419 to December's $3.935 per MMBtu.

Storage:

Net injections for the week ended Friday, April 19, were 69 Bcf according to American Gas Association (AGA) estimates. While this volume of net injections is 60 percent greater than the 43 Bcf that was added to inventory during the same week last year, it is triple the 5-year average of 23 Bcf. The latest EIA estimate for total working gas is 1,655 Bcf, more than 40 percent higher than the 5-year (1997-2001) average for this week. Considering last week's significantly warmer-than-normal temperatures in some regions of the country, (See Temperature Map) (See Deviation Map) which was reported to have placed a strong demand on power generators to meet the increased air conditioning load, last week's stock build exceeded the level anticipated by some industry observers. (See Storage Figure)

Industry/Market Developments

Gas drilling activity: The number of rotary rigs drilling gas prospects rose for the second week in a row, to 613, according to the latest Baker Hughes rig count released Friday, April 19. This is the first time in nearly a year that the natural gas rig count has recorded consecutive weekly increases. Since reaching its all-time high of 1,068 rigs running for the week ended July 13, 2001, the rig count has fallen quite consistently, recording only 4 weekly increases in the 36 weeks through April 5. As of that date, the rig count had dropped to 591–its lowest level since October 15, 1999, when it reached 579. For the month of March 2002, the average number of natural gas rigs was 617, compared with 913 for March 2001, or a decline of about 33 percent.

EIA weekly storage data series: The Energy Information Administration (EIA) will begin releasing weekly estimates of natural gas in underground storage for the United States and three regions of the United States on May 9, 2002. This new survey ensures that there will be no lapse in coverage of this important market indicator, since a similar weekly survey conducted by the American Gas Association (AGA) will be discontinued with their final release of weekly storage estimates on May 1, 2002 (with data for April 26). General information on the weekly storage survey, including weekly release time, a sample of the presentation format, EIA's policy on using automated retrieval programs (or robots) against the EIA site, and related information products is available at http://tonto.eia.doe.gov/oog/info/ngs/information.html. A paper discussing the Form EIA-912, "Weekly Underground Natural Gas Survey" and the estimation methods used will be available through this Web site on May 1, 2002. A second paper, comparing the AGA and EIA surveys and methods, will be available through this Web site on May 9, 2002.

Summary:

Spot prices declined at all markets on Wednesday (4/24/02) reversing an almost 10-day period of price increases. The NYMEX contract for May delivery closes tomorrow (4/26/02), and following yesterday's sharp decline of over 17 cents per MMBtu, it should end trading well below last year's price ($4.981). The latest estimate of weekly net additions to storage in the third week of April was triple the 5-year average.