Natural Gas

Overview:

The spot price at the Henry Hub finished the trading week on December 14 at $2.41 per MMBtu, roughly 30 cents or 14 percent over the previous Friday.On the NYMEX, the settlement price of the futures contract for January delivery at the Henry Hub settled at $2.846 per MMBtu, up nearly 28 cents over the previous Friday.Market prices were affected early in the week by colder weather, and then by milder temperatures that prevailed after Tuesday. (Temperature Map) (Temperature Deviation Map). At 22 Bcf, withdrawals from storage were again much smaller than historical averages. The spot price for West Texas Intermediate (WTI) crude oil increased by over 1 percent, climbing to $19.31 per barrel or $3.33 per MMBtu.

 

Prices:

Continuing the rally that began on Friday, December 7, spot prices climbed early in the week at many major market locations as more seasonal temperatures moved into the Midwest and Northeast.With plentiful supplies and normal levels of demand, the market did not appear poised for a price rally.However, prices rose between 15 and 30 cents per million Btu at the Southern California border, PG&E citygates, the Henry Hub, and the New York and Chicago citygates before declining on Wednesday.A number of related factors likely account for the price run-up.The settlement price of the futures contract for next month delivery at the Henry Hub has been nearly 48 cents greater than the Henry Hub spot price on average since November 2001.This gives suppliers an incentive to purchase gas on the spot market at today's relatively low prices instead of withdrawing gas from storage that could be available next month when higher prices are expected.Suppliers paid significantly higher prices for the natural gas they injected into storage during the summer than the current prevailing spot prices.The low current prices would discourage suppliers from withdrawing gas from storage to sell at a loss when relatively cheap gas is available on the spot market.Additionally, despite a warm fall, suppliers continue to expect a colder-than-normal winter that should cause increasing prices in January.As warming temperatures eased the temporary increase in incremental demand, prices declined in all markets on Wednesday and Thursday, and in many locations on Friday as well.Nonetheless, prices at many market locations ended the week up over the previous Friday with the Henry Hub spot price 30 cents higher than the previous Friday.

 

At the NYMEX, the settlement price of the futures contracts for winter months' delivery at the Henry Hub followed a somewhat similar pattern as the spot price, climbing early in the week before declining 7 to 8 cents on Wednesday, December 12.Bouncing back from Wednesday's decline and another weak AGA withdrawal report, the price of the near-month contract (January delivery) gained nearly 4 cents on Thursday when the National Weather Service (NWS) released its latest 30 and 90 day outlooks.The NWS is projecting colder-than-normal temperatures through March 2002 for the Northeast, Midwest, and Great Lakes regions.The price of the January contract finished the week up nearly 28 cents over the previous Friday.

 

Spot Prices ($ per MMBTU)-Selected Trading Centers	Mon.12/10	Tue. 12/11	Wed. 12/12	Thur. 12/13	Fri.12/14
Henry Hub	2.33	2.55	2.49	2.41	2.41
New York citygates	2.75	2.96	2.79	2.70	2.77
Chicago citygates	2.35	2.57	2.50	2.44	2.42
PG&E Citygates	2.68	2.93	2.92	2.97	2.90
Southern California Bdr. Average	2.51	2.73	2.72	2.69	2.69
Futures (Daily Settlement, $MMBTU)
January Delivery	2.747	2.803	2.719	2.756	2.846
February Delivery	2.827	2.868	2.793	2.822	2.908
Source: NGI's Daily Gas Price Index (http://intelligencepress.com)

 

Storage:

Net withdrawals from storage for the week ended Friday, December 7, were 22 billion cubic feet (Bcf), according to the American Gas Association (AGA).Total stocks were an estimated 3,118 Bcf, which is more than 800 Bcf above the working gas volume at this time last year.The net withdrawal of 22 Bcf is 69 percent below the 6-year average for the week.Although total stocks declined for the second consecutive week, the Producing region reported net injections of 4 Bcf, thereby extending its unprecedented run of net injections during the heating season to a fifth consecutive week.The 6-year (1995-2000) average storage activity for this week in the Producing region is a net withdrawal of 19 Bcf.By contrast, net withdrawals in the West region were once again significantly above average, being almost double the 6-year average of 9 Bcf.In fact, West region net withdrawals were the highest for this week of the heating season in the 8-year history of AGA data.

 

Unusually warm temperatures in most of the country have provided little impetus for storage withdrawals.According to NWS data, during the week of the latest AGA storage report, the number of heating degree days (weighted by gas home-heating customers) ranged from 6 to nearly 60 percent less than normal in the nine Census Divisions.For the Nation as a whole, heating degree-days were 37 percent less than normal. (Storage Figure)

 

All Volumes in BCF	Current Stocks (Fri,12/7)	Estimated 6-Year (1995-2000) Average	Percent Difference from 6 Year Average	Net Change from Last Week	One-Week Prior Stocks (Fri,11/30)*
East Region	1,841	1,639	12.4%	-10	1,851
West Region	366	348	5.1%	-16	382
Producing Region	911	675	34.9%	4	907
Total Lower 48	3,118	2,662	17.1%	-22	3,140
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.

 

Summary:

After significant increases early in the week, the Henry Hub spot price declined throughout the remainder of the week, yet closed at $2.41 per million Btu on Friday, December 14, up 30 cents over the previous Friday.The price of the futures contract for January delivery at the Henry Hub settled at $2.846 per million Btu, nearly 28 cents over the previous Friday's price.At 22 Bcf, withdrawals from storage were again small relative to historical averages.This pattern of relatively small net withdrawals from storage likely will continue as the basis differential between the spot price and the near-month futures contract price continues to be positive and relatively significant.