Overview:  Tuesday, November 13. 2001

For the week ended Friday, November 9, 2001, both spot and futures prices continued the generally downward trend initiated in the preceding week.  The declines accelerated on Monday (November 12), as prices dropped sharply to begin the week.  The unusually mild temperatures in many parts of the nation coupled with relatively high storage levels were major factors in the downward trend in prices.  Daily temperatures in a number of cities in the upper Midwest and Northern Plains States reached record highs and exceeded normal levels by double-digits. (See Temperature Map) (See Deviation Map)  By Friday, spot prices at the Henry Hub had declined for 9 days straight, ending the week at $2.63 per MMBtu, a drop of 33 cents from the previous Friday.  On Monday of this week (November 12), the spot price at the Henry Hub fell $0.17 per MMBtu to $2.46.   After its major downward shift of over 32 cents per MMBtu on Monday, November 5, the settlement price of the NYMEX futures contract for December delivery fell on 3 of the 4 ensuing trading days and ended the week at $2.925 per MMBtu, down $0.323 from the previous Friday.  This Monday (November 12), the December contract shifted down further, dropping $0.192 to settle at $2.733 per MMBtu.  The spot price for West Texas Intermediate crude oil (WTI) edged below $20 per barrel for one day (Tuesday, November 6), then recovered to end the week at $22.25 per barrel, or $3.84 per MMBtu, up $2.05 per barrel from Friday, November 2.  Yesterday, the WTI fell by a dollar to $21.25.

 

 

 

Prices:

Except for isolated exceptions, spot prices at nearly all market locations fell fairly consistently throughout the week.  Following Monday’s large drop of over 32 cents in the price of the NYMEX near-month (December) contract, cash prices fell significantly on Tuesday.  Then, after modest daily declines ranging up to a dime on Wednesday and Thursday, spot prices on Friday experienced the largest drop of the week at many market locations, with decreases ranging up to 30 cents per MMBtu.  For the week (Friday-to-Friday), price drops ranged from several cents to as much as $0.55 per MMBtu, as the market seemed to search for the proper balance between current low-demand fundamentals of mild weather and high inventories, and the upward influence of futures market prices.  By Friday, the price for spot gas in New York City was down 38 cents to $3.00 per MMBtu; while for Chicago delivery the price was $2.63, down by 34 cents from Friday, November 2.  Spot prices on SOCAL and PG&E were down 20 and 18 cents, respectively, to $2.41 and $2.33 per MMBtu.  Regional average prices ranged from a high of $2.56 per MMBtu in Louisiana-Onshore South, to a low of $1.82 in the Rockies.  On Monday, November 12, cash prices continued to fall, with declines ranging from a dime to as much as 40 cents.  Prices well under $2 per MMBtu were recorded in the Rockies and the San Juan production basin.

 

On the futures market, prices underwent a major downward shift on Monday, as National Weather Service (NWS) forecasts for both 6-10 and 8-14 day outlooks for above-average temperatures for most of the nation signaled the postponement of the start of the expected colder-than-normal winter.  The December contract fell $0.326, settling at $2.922 per MMBtu, its first settlement under $3 per MMBtu since becoming the near-month contract on October 30.  Except for a one-day increase on Thursday, futures prices continued to decline throughout the week.  The December contract settled on Friday at $2.925 per MMBtu, down $0.323 from its final price on Friday, November 2.  The contract for February delivery had the highest price for supply during the upcoming winter, settling at $3.130 per MMBtu, down $0.254 from its level of $3.384 on the previous Friday.  On Monday, November 12, futures prices moved down sharply, as the settlement prices for all winter months’ contracts fell below $3 per MMBtu.  The winter highest priced contract, for February delivery, settled on Monday at $2.968 per MMBtu.

 

Spot Prices ($ per MMBTU)-Selected Trading Centers	Mon. 11/05	Tues. 11/06	Wed. 11/07	Thur. 11/08	Fri.  11/09
Henry Hub	2.89	2.75	2.74	2.73	2.63
New York citygates	3.49	3.30	3.22	3.18	3.00
Chicago citygates	2.84	2.73	2.74	2.77	2.63
Northern CA PG&E	2.62	2.61	2.60	2.47	2.33
Southern CA (SOCAL)	2.73	2.65	2.62	2.58	2.41
Futures (Daily Settlement, $MMBTU)
December Delivery	2.992	2.880	2.870	2.960	2.925
January Delivery	3.092	3.054	3.050	3.132	3.105
Source: Platts, Gas Daily.

 

Storage:

According to American Gas Association (AGA) estimates, net additions during the week ended Friday, November 2, were 10 Bcf for a daily average of 1.4 Bcf. This brings total stocks at the end of the refill season on October 31 to an estimated 3,104 Bcf. The current end-of-October level is 15 percent, or 405 Bcf, greater than the total of 2,699 Bcf at the start of last year’s heating season and is only 3 percent below the previous 6-year high of 3,191 Bcf. All three storage regions entered the heating season with more working gas in stock than a year ago, with the Producing region leading the year-on-year totals with about 225 Bcf more than the previous year. In addition, with the NWS calling for warmer-than-normal temperatures through mid-November and with recent declines in cash prices, there is a strong possibility that many storage operators will continue to add to their working gas levels during this period. AGA data indicate that in 5 of the previous 8 years the industry continued to report net additions into early November.  (See Storage Figure)

 

All Volumes in BCF	Current Stocks (Fri,11/2)	Estimated 6-Year (1995-2000) Average	Percent Difference from 6 Year Average	Net Change from Last Week	One-Week Prior Stocks (Fri,10/26)
East Region	1,850	1,814	2.0%	4	1,846
West Region	393	361	8.9%	4	389
Producing Region	861	747	15.2%	2	859
Total Lower 48	3,104	2,922	6.2%	10	3,094
Note:  net change data are estimates published by AGA on Wednesday of each week.  All stock-level Figures are EIA estimates based on EIA monthly survey data and weekly AGA net-change estimates.  Column sums may differ from Totals because of independent rounding.

 

Other Market Trends:

The forecast in EIA’s November Short-Term Energy Outlook  (STEO) reflects an upward revision from its earlier projection on wellhead prices over the gas heating season months (November through March). In the report, EIA projected that the average wellhead price in the last quarter of 2001 will be $2.70 per Mcf compared with the previous forecast calling for an average of $2.20. The November STEO forecasts that prices should remain in the $2-$3 range through the remainder of the winter resulting in an average for the season of $2.62 per Mcf at the wellhead. Despite this recent upward revision, wellhead prices would remain well below the average of $6.74 per Mcf for November 2000 through March 2001.  The overall market fundamentals are not expected to be sufficient for a significant, sustained climb in prices during the remainder of this year and in 2002.

 

The lower wellhead gas prices expected this winter should translate into lower prices to end-use customers. Expenditures by residential customers are expected to decline by 32 percent from last winter, primarily because of a 26 percent decline in average price.  The reduced expenditures reflect the combined effect of lower prices and lower weather-related consumption.  Assuming normal temperatures, this winter would be 8 percent warmer than last year (as measured by heating degree days), reducing the need for gas for space-heating purposes.

 

 

Projected Expenditure for Natural Gas by Residential Customers
(Illustrative case for representative household in the Midwest)
	1998-1999 Actual	1999-2000 Actual	2000-2001 Actual	2001-2002 Base Forecast
Consumption (Mcf)	84.5	81.7	97.3	89.7
Avg. Price ($/Mcf)	$6.29	$6.67	$9.49	$6.98
Expenditure ($)	$532	$545	$923	$626
Source:  EIA, Short Term Energy Outlook, November 2001.

 

Summary:

Spot prices, displaying the continuing influence of relative short-term supply abundance, fell for a second consecutive week.  Likewise, futures prices moved lower as the arrival of widely forecast cold temperatures is currently not expected until later in the month.  Working gas in storage entering the heating season is 15 percent, or 405 Bcf, greater than the total of 2,699 Bcf at the start of last year’s heating season.  Gas prices are expected to remain at levels well below last winter.  Gas expenditures by residential consumers are expected to be lower this winter because of the combined effect of lower prices and reduced consumption given normal temperatures.