Natural Gas

Overview: Thursday, February 24 (next release 2:00 p.m. on March 3)

Since Wednesday, February 16, natural gas spot prices have declined at most market locations in the Lower 48 States, while increasing in the Northeast region. For the week (Wednesday–Wednesday), prices at the Henry Hub fell 9 cents, or about 1 percent, to $6.02 per MMBtu. Yesterday (February 23), the price of the NYMEX futures contract for March delivery at the Henry Hub settled at $6.311 per MMBtu, increasing roughly 20 cents, or about 3 percent, since last Wednesday. Natural gas in storage was 1,720 Bcf as of February 18, which is about 26 percent above the 5-year average. The spot price for West Texas Intermediate (WTI) crude oil increased $3.38 per barrel, or about 4 percent, on the week to $51.73 per barrel or $8.919 per MMBtu.

 

Prices:

Spot prices declined since last Wednesday, February 16, falling less than 10 cents at most market locations outside the Northeast, while prices at some selected markets in the Gulf of Mexico producing region fell by as much as 19 cents per MMBtu. Prices declined late last week, heading into the Presidents' Day holiday weekend. However, with the return of industrial demand and expectations of a cold snap, prices recovered in trading since Presidents' Day. This was particularly true in the Northeast region, where prices climbed by more than $0.25 per MMBtu at selected markets since last Friday, February 18. At the New York citygate, prices increased by $1.19 per MMBtu since last Friday, to average $7.97 per MMBtu on Wednesday, February 23, an increase of $1.21 since the preceding Wednesday. Similarly, prices at the Algonquin citygate, which serves the New England region, increased $0.94 in trading since Friday, posting an increase of $1.23 since Wednesday, February 16.

 

 

At the NYMEX, the price of the futures contract for March delivery at the Henry Hub increased about 20 cents per MMBtu since last Wednesday, February 16, to $6.311 per MMBtu. Similarly, prices for the futures contracts for the April 2005 contract increased about 24 cents during the same period to $6.420 per MMBtu. Futures contract prices for March 2005 and April 2005 followed a pattern similar to that of the Henry Hub spot price, with prices declining heading into the holiday weekend, and recovering in trading this week. This recovery in prices occurred despite continued increases in the differential between current working gas in storage levels and the 5-year-average.

Recent Natural Gas Market Data

 

Estimated Average Wellhead Prices
	Aug-04	Sept-04	Oct-04	Nov-04	Dec-04	Jan-05
Price ($ per Mcf)	5.36	4.86	5.45	6.07	6.25	5.52
Price ($ per MMBtu)	5.21	4.73	5.30	5.91	6.08	5.37
Note: Prices were converted from $ per Mcf to $ per MMBtu using an average heat content of 1,027 Btu per cubic foot as published in Table A4 of the Annual Energy Review 2002.
Source: Energy Information Administration, Office of Oil and Gas.

Storage:

Working gas in storage was 1,720 Bcf as of February 18, or 26.1 percent above the 5-year average, according to EIA’s Weekly Natural Gas Storage Report (See Storage Figure). The implied net withdrawal was 88 Bcf, which is 33 percent less than the 5-year average withdrawal of 131 Bcf for the week, and 78 Bcf, or 47 percent, lower than the estimated 166 Bcf withdrawal last year at this time. The below average withdrawal was indicative of the warmer-than-normal temperatures across the entire Lower 48 States. In the New England and Mid-Atlantic census divisions, where major population centers account for much of the country’s space-heating demand, the weather for the week was 15 and 16 percent warmer than normal, respectively, as measured by the National Weather Service heating degree days (HDDs) for the week ending Thursday, February 17, 2005. (See HDD table) The weather for the Lower 48 States was about 20 percent warmer than normal and about 29 percent warmer than last year at this time. The NWS report week ending February 17 was the fifth of the past seven weeks exhibiting warmer than normal temperatures across the Lower 48.

Please note that with the current edition of the Natural Gas Weekly Update temperatures will be reported on a Thursday-Thursday cycle, which coincides better with the reported storage data that are based on stocks as of Friday at 9 a.m. The temperature data provided with this report will consist of the HDD table only. Readers who want to consult the color maps previously available here can find the average temperature map and the deviations of average temperatures from normal at normal' the NOAA/NWS website.

Other Market Trends:

MMS Proposes New Rule for Ultra-Deep Drilling: On February 18, 2005, the Minerals Management Service (MMS) proposed a rule that would allow a new incentive program for drilling in depths of at least 25,000 feet true vertical depth sub-surface. Until now, the rule for leased areas dictated that the lessee must be producing or conducting other lease-holding operations to extend the lease beyond its primary term. However, owing to the added complexity and costs associated with planning and drilling an ultra-deep well, MMS recognizes that more time may be needed for exploration and development. In such cases, the lease term could be extended through Suspensions of Operations (SOO). With the proposed rule in place, an SOO would be granted if, among other provisions, the lease has either a 5-year primary term, or an 8-year term, which includes a requirement to drill within the first 5 years, and if the lessee or operator has plans to drill an ultra-deep well on the lease. Additionally, prior to the conclusion of the fifth year of the primary term, the company must have acquired and interpreted geophysical information that indicates all or a portion of the potential hydrocarbon-bearing formation is deeper than 25,000 feet and includes full 3-D depth migration over the entire leased area. Although some leases with 10-year primary terms are issued for deep-water blocks, they are not covered by the proposed rule, as the 10-year period is viewed as sufficient for exploration and development of deep-water prospects.

 

Summary:

Natural gas spot prices declined at most market locations outside of the Northeast region since last Wednesday, February 16. Working gas in storage declined to 1,720 Bcf, which is about 26 percent above the 5-year average.

  Short-Term Energy Outlook