Natural Gas

Overview: Thursday, June 23 (next release 2:00 p.m. on June 30)

Since Wednesday, June 15, changes to natural gas spot prices were mixed, declining at most markets in the Gulf of Mexico and Northeast regions while increasing at most market locations in the Lower 48 States. For the week (Wednesday-Wednesday), prices at the Henry Hub edged up 1 cent, to $7.40 per MMBtu. Yesterday (June 22), the price of the NYMEX futures contract for July delivery at the Henry Hub settled at $7.442 per MMBtu, roughly equal to last Wednesday's settlement price of $7.441 per MMBtu. Natural gas in storage was 2,031 Bcf as of June 17, which is about 15 percent above the 5-year average. The spot price for West Texas Intermediate (WTI) crude oil increased $2.74 per barrel, or about 5 percent, on the week to $58.27 per barrel or $10.047 per MMBtu.

 

Prices:

Spot price changes were mixed since last Wednesday, June 15, with increases occurring at most market locations outside the Northeast and Gulf of Mexico regions of the Lower 48 States. Increasing crude oil prices and continued warm weather in most regions of the Lower 48 States likely contributed to the firmness in natural gas prices. Prices climbed more than 30 cents per MMBtu at most markets west of the Rocky Mountains and parts of the West Texas and Midcontinent regions, with the largest increase occurring at the El Paso Bondad location in northwestern New Mexico. On average, prices in the California, Arizona/Nevada, Rocky Mountains, and West Texas regions increased between 43 and 56 cents per MMBtu. Elsewhere, price increases were less pronounced with prices increasing between 10 and 20 cents per MMBtu at most locations in the Midwest. Since last Wednesday, June 15, prices fell at most market locations in eastern and southern Texas, Louisiana, Alabama, and Mississippi as Tropical Storm Arlene passed without incident. Natural gas markets in the Northeast region saw the largest price declines in the Lower 48 States since last Wednesday, with decreases ranging between 11 and 17 cents per MMBtu as moderate temperatures moved into the region. As of June 22, 2005, natural gas prices at most market locations in the Lower 48 States are about 10 to 20 percent above last year's levels. At $7.40 per MMBtu, prices at the Henry Hub are $1.11 per MMBtu, or 18 percent, above last year's level at this time.

 

 

At the NYMEX, the price of the futures contract for June delivery at the Henry Hub increased slightly since last Wednesday, June 15, to $7.442 per MMBtu. Similarly, prices for the futures contracts through the remainder of the 2005 injection season (August 2005 through October 2005) were virtually unchanged with decreases of less than 2 cents per MMBtu or less than 1 percent. Futures prices remained in contango, as prices for the futures contracts for August 2005 through October 2005 ranged between 4 and 20 cents higher than the Henry Hub spot price, with successively higher differentials in each succeeding month. Despite the relatively narrow differentials through the injection season months, the 12-month futures strip (July 2005 through June 2006) is trading at a 59-cent premium to the Henry Hub spot price. This is driven primarily by the large differentials of the futures prices for the heating season months with respect to the Henry Hub spot price, as prices for futures contracts for delivery during the 5-month period November 2005 through March 2006 continue to exceed the spot price by about $1.23 per MMBtu on average. The steep contango in the natural gas futures market throughout the heating season months provides suppliers significant incentives to inject natural gas into storage.

 

Recent Natural Gas Market Data

 

Estimated Average Wellhead Prices
	Dec-04	Jan-05	Feb-05	Mar-05	Apr-05	May-05
Price ($ per Mcf)	6.25	5.52	5.59	5.98	6.44	6.02
Price ($ per MMBtu)	6.08	5.37	5.44	5.82	6.27	5.86
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 increased to 2,031 Bcf as of Friday, June 17, which is 15.4 percent above the 5-year average inventory level for the report week, according to EIA's Weekly Natural Gas Storage Report (See Storage Figure). The implied net injection of 75 Bcf is 18.5 percent below the 5-year average injection for the report week of 92 Bcf and 12.7 percent below last year's injection of 86 Bcf. Working gas levels are 270 Bcf more than the 5-year average, which is the smallest difference since the beginning of April. Temperatures during the report week were higher than normal across most consuming regions in the eastern United States but cooler than normal in most of the western regions (See Temperature Maps). Overall, the nation experienced 40 percent more cooling degree days than normal, which likely contributed to the lower than average rate of injections.

 

 

 

Other Market Trends:

EIA Publishes Report on Changes in Natural Gas Transportation Infrastructure: The Energy Information (EIA) published a new report, Changes in U.S. Natural Gas Transportation Infrastructure in 2004, on June 21, 2005, which reviews the level of growth that occurred within the U.S. natural gas transportation network during 2004. Although capacity additions in 2004 were almost 27 percent less than in 2003 (7.7 vs. 10.4 Bcf per day), there were several significant developments in 2004, including six new pipeline systems with a total of 1.8 Bcf per day of additional capacity located in the deepwater Gulf of Mexico and the extension of the Cheyenne Plains Pipeline, a 560 MMcf per day system that became operational in December 2004. Additionally, El Paso Natural Gas's southern leg expansion of 320 MMcf per day was completed in May 2004 and several new non-interstate pipelines were installed in Texas in 2004 to increase transportation services between East Texas production fields and interstate and non-interstate pipeline interconnections within the State. Growth in natural gas pipeline import and export capacity slowed as only one import expansion project was completed in 2004 and only one small, localized export point was added between Texas and Mexico. While the amount of capacity added in 2004 was the least since 2000, proposed projects for 2005-2007 total 44.4 Bcf per day. Although all projects will likely not be realized, the number of proposals suggests that expansion may be greater in the future.

 

Summary:

Natural gas spot prices increased at most market locations outside of the Northeast and Gulf of Mexico regions of the Lower 48 States since last Wednesday, June 15. Prices for the futures contracts for the upcoming heating season (November 2005 through March 2006) continued to trade at a significant premium to the Henry Hub spot price. Working gas in storage was 2,031 Bcf, which is about 15 percent above the 5-year average.

 

Short-Term Energy Outlook