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U.S. Natural Gas Markets: Recent Trends and prospects for the future
Impact of Interruptible Natural Gas Service
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Overview: Tuesday, January 22, 2002

Spot prices at many market locations across the country finished the week on Friday, January 18 with sharp decreases that reversed gains from earlier in the week. Prices at the Henry Hub declined 2 cents per MMBtu compared with the previous Friday. On the NYMEX, the settlement price of the futures contract for February delivery at the Henry Hub settled at $2.236 per MMBtu, up roughly 3 cents over the previous Friday. A trend towards cooler temperatures across most of the country likely contributed to the modest rally in prices early in the week. (See Temperature Map) (See Deviation Map) However, expectations of warmer temperatures early this week and lighter demand over the holiday weekend along with a-year-over-year storage differential of over 500 Bcf from normal (as measured by the 6-year average) likely reversed the price rally. The spot price for West Texas Intermediate (WTI) crude oil decreased by over 8 percent, falling to $18.02 per barrel or $3.10 per MMBtu.

 


 

 


Prices:

Spot prices at many locations throughout the country climbed early in the week, before declining after mid-week. Expectations of mild temperatures in the next week and light demand during the holiday weekend resulted in price declines between 8 and 30 cents on Friday at market locations across the country. The spot price at the Henry Hub finished the week at $2.29 per MMBtu, roughly 2 cents or nearly 1 percent less than the previous Friday. Nevertheless, prices in the Northeast, Rocky Mountain, and California regions ended the week higher than the previous Friday. Spot prices at the New York citygate exhibited the most variability climbing 24 cents on Wednesday before declining throughout the remainder of the week, and posted a net gain of 7 cents per MMBtu over the previous Friday to close at $2.72.

 

At the NYMEX, the settlement price of the futures contract for February delivery at the Henry Hub also climbed early in the week peaking on Wednesday, January 16 at $2.394, and declining in each of the ensuing trading days to end the week at $2.236 per MMBtu, up roughly 3 cents or almost 1.5 percent greater than the previous Friday. The settlement price of the February contract varied in a tight range of only about 14 cents per MMBtu. The settlement price for near month delivery continues to trade below the Henry Hub cash price, although on Wednesday, the February futures differed by less than one cent from the cash price. Cash prices have exceeded the near-month futures contract settlement price for all but one day in the almost 4 weeks of trading since December 26. This price pattern is consistent with a market belief that prices will decline through the heating season. However, prices are expected to increase thereafter, as the NYMEX prices for deliveries through 2002 rise consistently through January 2003.

 

Spot Prices ($ per MMBtu)

Mon. 1/14

Tues. 1/15

Wed. 1/16

Thurs. 1/17

Fri. 1/18

Henry Hub

2.32

2.37

2.39

2.40

2.29

New York citygates

2.76

3.00

2.97

2.95

2.72

Chicago citygate

2.24

2.30

2.35

2.37

2.22

PG&E citygate

2.20

2.28

2.32

2.34

2.19

So. Cal. Border Avg.

2.16

2.26

2.28

2.34

2.17

Futures ($/MMBtu)

 

 

 

 

 

February delivery

2.250

2.291

2.394

2.254

2.236

March delivery

2.240

2.273

2.363

2.254

2.236

Source: NGI's Daily Gas Price Index (http://intelligencepress.com)

 

Storage:

Net withdrawals of natural gas from storage were 137 Bcf for the week ended January 11, according to American Gas Association estimates (AGA). Despite heating degree days that were roughly 23 percent below normal across much of the United States, net withdrawals for this week were nearly 5 percent greater than the 6-year average during the report week. Working gas stocks were 2,576 Bcf, or 1,078 Bcf greater than stocks last year and 556 Bcf greater than the 6-year average for the same report week. The inventory overhang appears to have contributed to the relative price differential between the spot price and the futures price. Spot prices at the Henry Hub averaged about 9 cents higher than the settlement price of the futures contract for February delivery in at the Henry Hub, during the week ended January 11. This likely provided suppliers with an incentive to withdraw gas from storage despite the warmer than normal temperatures. (See Storage Figure) .

 

All Volumes in Bcf

Current Stocks (Fri,1/11)

Estimated 6-Year (1995-2000) Average*

Percent Difference from 6 Year Average

Net Change from Last Week

One-Week Prior Stocks (Fri,1/4)

East Region

1,490

1,233

21%

-86

1,576

West Region

320

277

16%

-7

327

Producing Region

765

510

50%

-44

809

Total Lower 48

2,576

2,020

28%

-137

2,713

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. *Revised to incorporate revisions to EIA monthly survey data for various months in 1999-2000.

 

Other Market Trends:

Gas drilling activity. Rigs drilling for natural gas numbered 722 according to the Baker-Hughes rig count report released on Friday, January 18. This is an increase of 3 rigs, or less than 1 percent from the prior week. Despite the modest increases last week, the number of rigs remains close to its lowest level since July 2000 when rigs numbered 716. Since reaching its record-setting peak of 1,068 rigs during the week ended July 13, 2001, rigs drilling for gas have declined at an average weekly rate of roughly 1.3 percent. The rig count is almost 19 percent below the level recorded during the same week last year. Despite the recent declines, rigs drilling natural gas prospects remain at historically high levels. Compared to yearly averages, the count of 722 rigs drilling gas prospects is below only the record level of 954 in 2001. However, continued declines in drilling for natural gas prospects could jeopardize gas supplies in the longer-term.

 

Summary:

Spot prices finished the week on Friday, January 18 with generally only small changes from the previous Friday. On the NYMEX, the settlement price of the futures contract for February delivery at the Henry Hub settled at $2.236 per MMBtu, up roughly 3 cents over the previous Friday. Net withdrawals of natural gas from storage were 137 Bcf for the week ended January 11 despite unseasonably warm weather. The number of rigs climbed by three last week, but remains almost 19 percent less than last yearís level.

 

 

 

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