Natural Gas

Overview:

A trend of increasing natural gas spot prices since mid-November abruptly halted late in the week before Christmas, owing to mild temperatures across the country during the first week of the holiday season. For the week (Wednesday-Wednesday, December 17-24), the Henry Hub spot price decreased $1.06 per MMBtu to $5.50, while declines in Midwest and Northeast market centers were even greater at between $1.10-$1.40. The price of the NYMEX futures contract for January delivery fell slightly more than $0.61 per MMBtu to $6.379. As of December 19, natural gas in storage had decreased to 2,699 Bcf, which is 0.1 percent below the 5-year average. Although the spot price for West Texas Intermediate (WTI) crude oil increased slightly in trading before the holiday, the spot price fell $1.33 on the week to $32.03, or $5.52 per MMBtu.

Prices:

A sharp downturn in spot prices at most trading locations last week reversed an upward trend in prices since mid-November. Before last week, prices had increased over 50 percent since November 18. However, during the week ending Wednesday, December 24, the average price at the Henry Hub fell in four straight trading sessions, ending at $5.50 per MMBtu last Wednesday, or about 16 percent lower since December 17. Other production-area points in the Midcontinent and West Texas registered slightly larger decreases of $1.10 to $1.40 per MMBtu. With the temperatures near 55 degrees in New York City and elsewhere in the Northeast in the days preceding the holiday and the National Weather Service calling for warmer weather in the Eastern United States in the near term, price decreases in the Northeast were steep during the week. The average spot price at the New York citygate fell $1.23 per MMBtu on the week to $5.96. This is the first time in December that the New York citygate price has fallen below $6 per MMBtu. Falling in the last 5 consecutive trading sessions, the New York price has declined a total of $2.01 per MMBtu or slightly more than 25 percent. Warmer temperatures further limited demand during a time when industrial demand was likely to drop because of the holiday week. Rockies and California prices followed the general pattern for other trading locations in the Lower 48, owing to moderate weather also in the West. The average price at the PG&E citygate in northern California fell $0.90 per MMBtu during the week to $5.23 per MMBtu

 

Spot Prices ($ per MMBtu)	Thur.	Fri.	Mon.	Tues.	Wed.
	18-Dec	19-Dec	22-Dec	23-Dec	24-Dec
Henry Hub	6.98	6.93	6.30	5.57	5.50
New York	7.97	7.65	6.80	5.97	5.96
Chicago	6.94	6.74	6.20	5.45	5.42
Cal. Comp. Avg,*	6.32	6.22	5.78	5.00	4.98
Futures ($/MMBtu)
Jan delivery	7.122	6.982	6.324	6.14	6.38
Feb delivery	7.182	7.023	6.388	6.24	6.39
*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).

Note: Due to the holiday there was no trading on December 25 & 26, 2003.

 

At the NYMEX, the futures contract for January delivery lost $0.614 per MMBtu during trading, also owing to current and forecasted warmer weather. The daily settlement for the near-month contract on Tuesday, December 23, fell as low as $6.143, which was its lowest settlement since December 5, before moving up about 24 cents on Wednesday after EIA released updated storage numbers for underground inventories through December 19. In the last five trading sessions, the January contract has fallen a total of 74 cents per MMBtu, or about 10.4 percent. The February 2004 contract, which is currently the highest priced contract for this winter, closed on Wednesday, December 24, at $6.392 per MMBtu, down 60 cents on the week. Since the previous Wednesday (December 17), the 12-month strip, which is the average of futures prices for the coming year, dropped 9.5 cents per MMBtu to $5.45.

Estimated Average Wellhead Prices
	Jun-03	Jul-03	Aug-03	Sep-03	Oct-03	Nov-03
Price ($ per Mcf)	5.35	4.91	4.72	4.58	4.43	4.34
Price ($ per MMBtu)	5.21	4.79	4.60	4.46	4.32	4.23
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:

Working gas in underground storage decreased to 2,699 Bcf as of Friday, December 19, according to EIA's Weekly Natural Gas Storage Report. Inventories now stand 0.1 percent, or 3 Bcf, below the 5-year average of 2,702 Bcf. (See Storage Figure) This is the first time during the traditional winter heating season (which begins November 1) that storage inventories have fallen below the 5-year average. Despite the relatively cold December, inventories are 6 percent, or 159 Bcf, higher than last year's level of 2,540 Bcf at this time. The implied net withdrawal for the week was 151 Bcf, which is the largest withdrawal so far this heating season. During the week ending December 20, the weather for the country as a whole was approximately 1.5 percent warmer than normal, as measured by heating degree days (HDDs) published by the National Weather Service, but 22 percent colder than last year, when the implied withdrawal was 95 Bcf. The Middle Atlantic experienced temperatures that were about 1 percent colder than normal and 8 percent colder than last year. In the East North Central region, which includes Chicago and other Midwest population centers, temperatures were 1 percent warmer than normal, but 30 percent colder than last year.

 

All Volumes in Bcf	Current Stocks 12/19/03	One-Week Prior Stocks 12/12/03	Implied Net Change from Last Week	Estimated Prior 5-Year (1998-2002) Average	Percent Difference from 5 Year Average
East Region	1,584	1,678	-94	1,616	-2.0%
West Region	343	360	-17	340	0.9%
Producing Region	772	812	-40	746	3.5%
Total Lower 48	2,699	2,850	-151	2,702	-0.1%
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:

EIA Reports Four Straight Years of Natural Gas and Crude Oil Reserves Growth: Proved reserves of natural gas and crude oil have increased for the fourth year in a row, according to the Energy Information Administration's U.S. Crude Oil, Natural Gas, and Natural Gas Liquids Reserves 2002 Annual Report, released December 17, 2003. Moreover, natural gas proved reserves have increased in eight of the past nine years. U.S. natural gas reserves increased by 2 percent in 2002 and additions to reserves were 118 percent of production. In 2002, the Rocky Mountain States and Texas had large gas reserves additions, much of which were from unconventional sources such as tight sands, shales, and coalbeds, highlighting a shift from conventional to unconventional gas fields. Coalbed methane reserves increased by 5 percent from 2001 levels and accounted for 10 percent of U.S. dry gas proved reserves. Eleven of the top twenty natural gas fields of 2002 are located in the Rocky Mountain States. Significant reserves were added in the Powder River Basin coalbed methane fields and the Pinedale Field (deep and tight sand) in Wyoming, and the Wattenberg Field (tight sand) and coalbed methane fields in Colorado. In Texas, significant reserves were added in the Newark East Field (Barnett Shale), the Nation's tenth largest natural gas field.

 

Summary:

EIA reported storage inventories as of December 19 had fallen below the 5-year average for the first time this heating season, confirming higher demand through the first half of the month. However, warmer-than-normal temperatures in many major gas-consuming areas of the nation since have led to spot prices plunging between $1-$2 per MMBtu over the last five trading sessions. Meanwhile, the January futures contract declined 61 cents, or 9 percent, since Wednesday, December 17.

 

Natural Gas Summary from the Short-Term Energy Outlook