Natural Gas

Overview:

Moderate temperatures for much of the week (Wednesday-Wednesday, October 8-15) failed to offset upward pressure on spot prices from higher crude oil prices and the prospect of higher demand with the approaching heating season. The result at the Henry Hub was a net gain on the week of 9 cents per MMBtu to $4.93. Despite losing value in the past three trading days, the NYMEX futures contract for November delivery at the Henry Hub was higher on the week by about 28 cents per MMBtu to $5.431. Natural gas in storage as of Friday, October 10, increased to 2,944 Bcf, which is 0.3 percent below the 5-year average. The spot price for West Texas Intermediate (WTI) crude oil rose $2.14 per barrel on the week to yesterday's (October 15) closing price of $31.74 per barrel, or $5.47 per MMBtu.

 

 

Prices:

Natural gas spot prices increased 5 to 35 cents per MMBtu this week, with the largest gains coming last Friday (October 10) as traders responded to rising prices for crude oil and winter energy supplies and on Wednesday (October 15) as colder weather moved into key gas-consuming market areas. Last Friday, the Henry Hub price jumped 15 cents on the day to $4.97 per MMBtu, the highest price at the Henry Hub since late August. The Henry Hub price ended the week at $4.93, or 9 cents higher than last Wednesday. While moderate temperatures throughout the country held down prices after the weekend, colder weather in the upper Midwest and the Northeast boosted prices in trading yesterday (October 15), registering gains 20 cents per MMBtu and more on the day in the Midcontinent producing area, which is connected by pipeline to Midwest consuming markets. At Ventura, Iowa, the price for spot gas off the Northern Natural Gas pipeline system gained 36 cents per MMBtu on the week to $4.94. The price at Chicago citygates increased 18 cents to $5.20, which was a premium of 27 cents to yesterday's Henry Hub price. The increased heating load in the consuming areas boosted aggregate demand, resulting in gains of between 5 and 12 cents per MMBtu on the week along the Gulf Coast and in Texas production areas.

 

Spot Prices ($ per MMBtu)	Thur.	Fri.	Mon.	Tues.	Wed.
	9-Oct	10-Oct	13-Oct	14-Oct	15-Oct
Henry Hub	4.77	4.92	4.97	4.82	4.93
New York	5.10	5.23	5.29	5.27	5.36
Chicago	4.85	4.99	5.12	5.11	5.20
Cal. Comp. Avg,*	4.67	4.71	4.77	4.78	4.83
Futures ($/MMBtu)
Nov delivery	5.494	5.652	5.547	5.475	5.431
Dec delivery	5.791	6.052	5.962	5.870	5.780
*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).

 

At the NYMEX, the price of the futures contract for November delivery at the Henry Hub closed yesterday (October 15) at $5.431 per MMBtu, which is about 28 cents higher than last Wednesday's daily settlement. The near-month contract surged almost 35 cents per MMBtu last Thursday (October 9) to $5.494, owing to a confluence of factors including rising oil prices and anticipation of higher demand with the approaching heating season. Numerous reports also cited heavy NYMEX buying as traders covered short positions before the official start of the heating season. On Friday, heavy buying pushed the near-month contract up almost 16 cents more to a daily settlement of $5.652 per MMBtu, the highest settlement for a prompt contract since June 24. However, NYMEX prices reversed course after the weekend as moderate temperatures and lagging spot market prices led to lower prices for the near-month contract on three consecutive trading days. The basis differential between the Henry Hub spot price and price of the futures contract for delivery in January 2004 increased to well over a $1 at times this week as the January contract closed three of the five trading days above $6 and the Henry Hub spot price remained below $5 each day. As a result, the basis continues to provide suppliers an incentive to inject gas into storage. The 12-month strip, or the average price for contracts over the next year, closed yesterday at just under $5.19, a gain of 12 cents on the week.

Estimated Average Wellhead Prices
	Apr-03	May-03	Jun-03	Jul-03	Aug-03	Sep-03
Price ($ per Mcf)	4.71	4.97	5.35	4.91	4.72	4.58
Price ($ per MMBtu)	4.59	4.84	5.21	4.79	4.60	4.46
Note: The price data in this table are a pre-release of the average wellhead price that will be published in forthcoming issues of the Natural Gas Monthly. Prices were converted from $ per Mcf to $ per MMBtu using an average heat content of 1,025 Btu per cubic foot as published in Table A2 of the Annual Energy Review 2001.
Source: Energy Information Administration, Office of Oil and Gas.

 

Storage:

Estimated working gas in underground storage was 2,944 Bcf as of October 10, which is 0.3 percent below the 5-year average inventory level for the report week, according to EIA's Weekly Natural Gas Storage Report (See Storage Figure). The net change in inventories continues a string of robust injections this fall as the implied net injection for the week was 81 Bcf, which is 59 percent higher than the 5-year average injection of 51 Bcf and 69 percent higher than last year's injection of 48 Bcf for the report week. Inventories as of the report date were an estimated 8 Bcf below the 5-year average of 2,952 Bcf. Seasonally mild temperatures throughout the country likely generated little weather-sensitive demand, allowing for the continuing large net injections. During the report week, the weather for the country as a whole was about 36 percent warmer than normal, as measured by heating degree days (HDDs) for the week ending October 11, according to the National Weather Service See Temperature Map.) (See Deviation Map.). Temperatures in major consuming market areas were generally mild. For example, in the East North Central region, which includes Chicago, HDDs numbered 37 percent below normal.

 

All Volumes in Bcf	Current Stocks 10/10/03	One-Week Prior Stocks 10/3/03	Implied Net Change from Last Week	Estimated Prior 5-Year (1998-2002) Average	Percent Difference from 5 Year Average
East Region	1,758	1,710	48	1,785	-1.5%
West Region	381	374	7	364	4.7%
Producing Region	805	779	26	802	0.4%
Total Lower 48	2,944	2,863	81	2,952	-0.3%
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:

Legal Challenge to BLM's Powder River Basin Development Decisions Continues: A federal district court judge for the District of Montana has ruled that the state of Wyoming and various producers may intervene in support of the United States Bureau of Land Management (BLM), which is being sued collectively by the Western Organization of Resource Councils, the Wyoming Outdoor Council, the Natural Resources Defense Council, and the Powder River Basin Resource Council. The crux of the lawsuit, filed May 1 of this year, is BLM's final environmental impact statements (EIS) concerning coalbed methane development in the Powder River Basin, which straddles the states of Montana and Wyoming. The suit alleges, among other things, that the EISs violate provisions of the National Environmental Policy Act, and that BLM failed to do an adequate evaluation of the direct, indirect, and cumulative impacts of coalbed methane development on the land, air, and ground water in the project area. Ultimately at issue is when and under what conditions and restrictions producers may pursue the estimated 25 trillion cubic feet of natural gas in the form of coalbed methane believed to exist in the Basin. The project area covered by the EISs includes 8 million acres of public and privately owned lands in Wyoming, and the entire state of Montana. BLM's environmental determinations essentially authorize producers to drill another 39,400 wells in Wyoming in addition to the 14,300 wells already completed, and contemplate authorization for more than 26,000 wells in Montana.

 

LNG Imports Show Strong Growth in 2003: Imports of liquefied natural gas (LNG) in the second quarter increased by 78 percent over the same quarter last year, to 126.4 billion cubic feet (Bcf), according to the latest import and export report issued by the Office of Fossil Energy, U.S. Department of Energy. Even more impressive was the year-to-date increase of 108 percent: 201.5 Bcf vs. 96.9 Bcf. (The report, Natural Gas Imports and Exports Second Quarter Report 2003, can be viewed on Fossil Energy's website at www.fe.doe.gov.) Further, early indications are that LNG import growth accelerated in the third quarter. According to estimates published by Natural Gas Week in its October 13, 2003 issue, imports in July through September were nearly 2 ½ times the volume imported in the third quarter of last year. This year's third quarter featured LNG imports averaging 1,658 MMcf/day, or a total of about 152.5 Bcf, according to Natural Gas Week. The estimated 152.5 Bcf dwarfs the 62.5 Bcf reported by EIA for the third quarter last year and exceeds the 2003 second quarter flow by 21 percent. The Cove Point import facility in Maryland has received six tankers since its reopening in August, and is reportedly injecting regasified LNG into the pipeline system as quickly as its current 750 MMcf/day baseload capacity will allow. The Trunkline terminal at Lake Charles, Louisiana, received an average of nearly 1 Bcf/day during the third quarter, which equals the facility's peak vaporization capacity.

 

Summary:

Natural gas spot prices at most market locations increased 5 to 35 cents per MMBtu owing to higher crude oil prices and the prospect of higher demand with the approaching heating season. The NYMEX price for November delivery at the Henry Hub climbed about 28 cents per MMBtu to a close of $5.431 on Wednesday, October 15. Natural gas in storage grew closer to 3 Tcf as the winter withdrawal season nears. As of October 10, inventories were an estimated 2,944 Bcf, which is a net increase of 81 Bcf from the previous week.

 

Natural Gas Summary from the Short-Term Energy Outlook