Natural Gas

Overview: Thursday, March 3 (next release 2:00 p.m. on March 10)

Following the cold weather trend, natural gas prices have increased since Wednesday, February 23 at most market locations in the Lower 48 States, with the exception of some Northeast trading points. For the week (Wednesday-Wednesday), spot prices at the Henry Hub increased 59 cents per MMBtu, or 9.8 percent, to $6.61. The price of the NYMEX futures contract for April delivery at the Henry Hub rose approximately 30 cents per MMBtu to settle yesterday (Wednesday, March 2) at $6.717. Natural gas in storage was 1,613 Bcf as of Friday, February 25, which is 28.5 percent above the 5-year average. The spot price for West Texas Intermediate (WTI) crude oil increased $1.27 per barrel or about 2.5 percent since last Wednesday to trade yesterday at $53.00 per barrel or $9.14 per MMBtu, the highest price since the October 26, 2004, record price of $56.37 per barrel.

 

 

Prices:

Natural gas spot prices increased 4 to 89 cents per MMBtu at nearly all major trading locations in the Lower 48 States, as space-heating demand remained strong as a result of the colder-than-normal temperatures in major gas-consuming markets and in response to increasing crude oil spot and futures prices. The upward pressure on spot prices continued through yesterday's trading session, as prices at the Henry Hub were 9.8 percent higher than levels the previous Wednesday (February 23). Prices at Midwest trading points increased between 7 and 10 percent, with prices at the Chicago citygate increasing 61 cents, or about 10 percent on the week to $6.66 per MMBtu. The Northeast markets experienced mixed price movements between trading points, as prices at some trading points declined (the only price declines recorded at any market locations during the week) and increased at others. Algonquin citygate prices decreased 19 cents on the week, or 2.3 percent, while the price for delivery at Tennessee Zone 6 decreased by 37 cents, or 4.5 percent. The highest price increase for the week was recorded in the Northeast, where the Texas Eastern M-2 price increased by 89 cents, or 14 percent.

 

At the NYMEX, the futures contract for March delivery expired last Thursday, February 24, at $6.304 per MMBtu. The price of the March contract increased $0.045, or 0.7 percent, in value over the course of its tenure as the near-month contract. In comparison, the March 2004 contract lost 50.9 cents per MMBtu during its tenure as the near-month contract, expiring at $5.15 per MMBtu. Since last Wednesday, the April contract gained about 30 cents per MMBtu in value, or about 5 percent. On Thursday, when it became the near-month contract, the price for the April contract was at its highest value since late December 2004 and almost 25 percent higher than the price of the April 2004 contract ($5.391) when it opened as the near-month contract. During the week, the value of contracts for gas deliveries further into the future followed the trend of the March and April contracts prices. Yesterday's closing price of $7.226 per MMBtu for the 12-month strip, which is the average of futures prices for the coming year, was about 6 percent higher than the previous Wednesday (February 23) closing price of $6.853.

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 1,613 Bcf as of February 25, or 28.5 percent above the 5-year average, according to EIA's Weekly Natural Gas Storage Report (See Storage Figure). The implied net withdrawal was 107 Bcf, which is about 2 percent less than the 5-year average withdrawal of 109 Bcf for the week, and 8 Bcf, or 7 percent, lower than the estimated 115 Bcf withdrawn last year at this time. The below average withdrawal likely resulted from the warmer-than-normal temperatures that prevailed across much of the Lower 48 States outside of the Northeast. The New England and Mid-Atlantic census divisions were the only regions in the Lower 48 States where the weather for the week was significantly colder than normal, with temperatures 14 and 13 percent below normal, respectively, as measured by the National Weather Service heating degree days (HDDs) for the week ending Thursday, February 24, 2005. (See HDD table) Elsewhere in the Lower 48 States, HDDs were more than 5 percent warmer than normal on a regional basis. On average, HDDs for the Lower 48 States indicate temperatures were about 2 percent warmer than normal.

Other Market Trends:

EIA Updates Web Site on Retail Gas Competition: The Energy Information Administration (EIA) has updated its website on the status of natural gas residential choice programs to include information through December 2004 (see Natural Gas Residential Choice Programs). According to the website, 21 states and the District of Columbia have legislation or programs in place that allow residential consumers and other small-volume gas users to purchase natural gas from someone other than their traditional utility company. Additional information on the level of participation in the customer choice programs in each state is also available. The data show that although eligibility in residential choice programs increased since 2003, enrollment decreased, marking the first downturn in participation levels since states began opening up residential retail markets to competitive supply offers in the 1990s. In 2004, nearly 33 million of the nation's 62 million residential gas customers were eligible for customer choice programs, an increase of about 2.5 percent since 2003. However, enrollment dropped by almost 5 percent in 2004, with less than 4 million (12 percent of eligible) residential customers participating. In total, the United States had 61,857,913 residential and 5,150,925 commercial customers in 2003 and they consumed 5,078 and 3,217 billion cubic feet of natural gas, respectively. The average prices paid for natural gas purchased from local distribution companies by residential and commercial customers in 2003 were $9.52 and $8.29 per thousand cubic feet, respectively. The next update of the website on the status of residential choice programs will be in February 2006.

 

AGA Finds That Gas Home Heating Market Share Is Growing: The American Gas Association (AGA) reported that the proportion of new, single-family homes heated with natural gas or propone rose from 68 percent in 2002 to 70 percent in 2003. These results are part of a natural gas market survey conducted by AGA and released on Tuesday. Using U.S. Census Bureau data, AGA stated that 967,000 single-family homes heated with gas were completed in 2003. Of the remaining 30 percent of new single-family homes without gas heat, 27 percent had electric heat, 2 percent had oil heat, and 1 percent was heated by other sources. The regional breakdown for proportion of new single- family homes using gas heat is: Midwest, 92 percent; West, 91 percent; Northeast, 70 percent; and South, 48 percent. For multi-family units, the survey showed that gas overtook electricity in 2003 as the most popular heating source with gas heating 51 percent of multi-family homes and electricity, 47 percent. Of U.S. homes that are heated, natural gas is the most popular source, heating 52 percent of all housing units. Electricity heats 31 percent, heating oil heats 9 percent, propane heats 6 percent, and other sources heat the remaining 2 percent.

 

Natural Gas Prices Contributing to Increases in Greenhouse Gas Emissions: The United States Environmental Protection Agency (EPA) cited increasing natural gas prices as one of three primary contributors to a 0.6 percent increase in greenhouse gas emissions from 2002 to 2003. According to the "Draft Inventory of Greenhouse Gas Emissions and Sinks: 1990 – 2003," released on Tuesday, higher prices have caused some electric power producers to switch to burning coal, the price of which remained relatively stable in 2003. The report explained that producing a unit of heat or electricity using natural gas instead of coal can reduce carbon dioxide (a naturally occurring greenhouse gas) emissions because of the lower carbon content of natural gas. The leading factor contributing to the emissions increase was moderate economic growth in 2003, which led to increased demand for electricity and fossil fuels. A colder winter also contributed to an increase in the use of heating fuels. In 2003, total emissions of the six main greenhouse gases were 6,899 million metric tons of carbon dioxide equivalent. Fossil fuel combustion was the largest source of emissions, accounting for 80 percent of the total. For the period reported, 1990 to 2003, emissions have grown by 13 percent, reaching a high in 2000, while the U.S. economy has grown by 46 percent.

 

Summary:

Natural gas spot prices at most market locations increased between 0.5 and 14 percent as cold temperatures lingered in many parts of the country. Price movements in the futures market during the last week were similar to spot market changes and gained between 4.2 and 5 percent on the week. The March contract expired at $6.304 on February 24, before it was replaced by the April contact as the near-month futures contact. Natural gas in storage declined to 1,613 Bcf as of February 25, leaving inventories 28.5 percent above the 5-year average.

Short-Term Energy Outlook