Natural Gas

Overview:

Since Wednesday, October 10, natural gas spot prices have increased at most locations in the Lower 48 States, climbing between 10 and 50 cents per MMBtu. For the week (Wednesday-Wednesday), prices at the Henry Hub increased 19 cents or roughly 5 percent to $4.10 per MMBtu. The price of the NYMEX futures contract for November delivery at the Henry Hub has increased nearly 31 cents since last Wednesday to settle at $4.227 per MMBtu yesterday (October 16). Natural gas in storage increased to 3,128 Bcf, which exceeds the 5-year average by slightly more than 8.5 percent. The spot price for West Texas Intermediate (WTI) crude oil declined 30 cents per barrel or less than 1 percent since last Wednesday to trade at $29.28 per barrel or $5.05 per MMBtu.

 

 

Prices:

Spot prices generally increased over the past 7 days despite price drops last Thursday and Friday as mild temperatures heading into the Columbus Day holiday weekend mitigated demand for natural gas. Prices were at relatively high levels on Wednesday, October 9, driven principally by lingering shut-ins resulting from Hurricane Lili, then declined as the week progressed and production was restored. Prices rebounded on Monday, October 14, with gains of 30 to 57 cents per MMBtu as wintry weather moved into some parts of the country. After being mostly flat on Tuesday, October 15, prices fell up to 15 cents on Wednesday, October 16. For the week (Wednesday to Wednesday), price increases were the largest in the Midcontinent and Rocky Mountains regions, where the winter-like weather was the coldest.

 

At the NYMEX, the price of the futures contract for November delivery at the Henry Hub has increased nearly 31 cents since Wednesday, October 9, to settle at $4.227 per MMBtu on Wednesday, October 16. Factors contributing to the increase in futures prices likely include the lower-than-normal injection of natural gas into storage reported last week, climbing spot prices, a cool weather forecast, and lingering concerns about supplies in the wake of Hurricane Lili. Prices of the futures contracts for delivery during the remaining months in 2002 and through the heating season have increased by roughly 18 to 31 cents per MMBtu since October 9, with the larger increases occurring for the more immediate months' contracts. Prices of the contracts for the peak winter months of December through February are more than 24 cents higher than the current Henry Hub spot price. This price differential provides an incentive for continued additions of natural gas to storage for the winter heating season.

 

Spot Prices ($ per MMBtu)	Thur.	Fri.	Mon.	Tues.	Wed.
	10-Oct	11-Oct	14-Oct	15-Oct	16-Oct
Henry Hub	3.94	3.79	4.19	4.20	4.10
New York	4.24	4.05	4.45	4.53	4.39
Chicago	3.94	3.81	4.23	4.25	4.18
Cal. Comp. Avg,*	3.43	3.23	3.82	3.87	3.66
Futures ($/MMBtu)
Nov delivery	3.828	4.146	4.303	4.247	4.227
Dec delivery	4.055	4.336	4.471	4.440	4.422
*Avg. of NGI's reported avg. prices for: Malin, PG&E citygate,
and Southern California Border Avg.
Source: NGI's Daily Gas Price Index (http://intelligencepress.com).

 

Storage:

Working gas in storage was 3,128 Bcf for the week ended Friday, October 11, 2002, according to the EIA Weekly Natural Gas Storage Report. This is 8.5 percent above the 5-year average for the report week, and almost 2 percent above the level last year for the same week. (See Storage Figure) The implied net change was 48 Bcf, which is roughly 17 percent below the 5-year average weekly change of 58 Bcf for the report week. Implied net injections were less than the 5-year average in the Consuming East and Producing regions, falling 7 Bcf and 3 Bcf below the average build for the report week, respectively. Meanwhile, in the West region, injections were equal to the 5-year average. The below normal injections of natural gas into storage likely can be attributed to the production curtailments resulting from Hurricane Lili. However, the impact of Lili on net injections likely was mitigated by the relatively mild temperatures that prevailed across most of the country last week. (See Temperature Map) (See Deviation Map) If weekly net injections approximate the 5-year average of roughly 41 Bcf through the remainder of the refill season, then working gas in storage will be close to 3,244 Bcf by the end of October when the refill season ends. This would exceed last year's working gas stocks entering the heating season by about 3 percent.

 

All Volumes in Bcf	Current Stocks 10/11/02	Estimated Prior 5-Year (1997-2001) Average	Percent Difference from 5 Year Average	Implied Net Change from Last Week	One-Week Prior Stocks 10/04/02
East Region	1,839	1,773	3.7%	29	1,810
West Region	412	354	16.4%	6	406
Producing Region	877	758	15.7%	13	864
Total Lower 48	3,128	2,884	8.5%	48	3,080
Source: Energy Information Administration: Form EIA-912, "Weekly Underground Natural Gas Storage Report," and the Historical Weekly Storage Estimates Database. Row and column sums may not equal totals due to independent rounding.

 

Other Market Trends:

Report on Nova Scotia Natural Gas Reserves: According to a report commissioned by the Canada-Nova Scotia Offshore Petroleum Board, undiscovered gas reserves in the offshore region of Nova Scotia could range from 15 to 41 trillion cubic feet (Tcf). The report titled, "Hydrocarbon Potential of the Deep-Water Scotian Slope", was released last week and contains assessments that would double earlier natural gas estimates and also add significantly to the expected oil recovery potential. In 2001, over 152 Bcf of natural gas produced at the Sable Island project off Nova Scotia was imported into the United States at Calais, Maine, an increase of 22 percent from the previous year's 124 Bcf.

 

Natural Gas Rig Counts: The number of rigs drilling for natural gas declined to 709 for the week ending October 11, according to Baker-Hughes Incorporated. This is the lowest rig count since 697 was reported for the week ended June 28, 2002. After reaching a recent high of 746 for the week ended September 13, the number of rigs drilling for natural gas has trended down in 3 of the past 4 weeks. It has declined 24 percent from a year ago at this time when Baker-Hughes reported that 933 natural gas drilling rigs were in operation. Despite this year's declines, the number of active natural gas drilling rigs remains close to the monthly average of 720 for the year 2000 and well above 1999's average of 436. The share of rigs drilling for natural gas has remained above 80 percent since May 2001, and last week's average of 83.5 percent continued this trend. The emphasis on gas exploration and development generally reflects a relative advantage in the economics of natural gas prospects compared with domestic crude oil prospects.

 

Summary

Spot prices climbed during the week since October 9 with increases of over 10 cents at most market locations. The futures contract price for November delivery increased by 31 cents, settling at $4.227 per MMBtu. As of October 11, working gas storage stocks were 3,128 Bcf, a level well above the maximum for this week during the past 5 years.

 

Natural Gas Summary from the Short-Term Energy Outlook