Overview: Monday March 18, 2002

Spot prices at most market locations across the country finished the week on Friday, March 15 with sharp gains that contributed to significant increases ranging between 11 and 36 cents per MMBtu over the previous Friday.  Prices at the Henry Hub climbed 18 cents per MMBtu from the previous Friday to trade at $2.99.  On the NYMEX, the price of the futures contract for April delivery at the Henry Hub settled at $3.076 per MMBtu, up roughly 28 cents over the previous Friday.  A trend towards cooler temperatures across some parts of the country, larger-than-expected net withdrawals from storage for the week ended Friday, March 8, and a recovering economy that increased demand likely contributed to the rally in prices.  (See Temperature Map) (See Deviation Map) The spot price for West Texas Intermediate (WTI) crude oil increased by over 2.5 percent, climbing to $24.47 per barrel or $4.22 per MMBtu.

 

 

 

Prices:

In a week of heightened variability, spot prices at many locations throughout the country climbed through mid-week, before falling by 10 to 23 cents on Thursday March 14 and recovering the following day.  Cooler temperatures across the northern portions of the country and in the West, combined with expectations of cooler temperatures in the Southeast, likely contributed to the price increases.  The spot price at the Henry Hub finished the week at $2.99 per MMBtu, roughly 18 cents or over 6 percent higher than the previous Friday.  Spot prices in the Rocky Mountains exhibited the largest weekly gains as well as a high degree of daily variability as an outage on the Kern River system curtailed supplies in the region.  By Friday, prices in the Rockies were 25 to 36 cents higher than on the previous Friday.  The curtailed supplies in the Rockies likely affected the California market also.  As gas-fired electric generation peaking units responded to the high electricity demand in the region, natural gas prices in California spiked, ending the week between 26 and 31 cents greater than the previous Friday. 

 

At the NYMEX, the settlement price of the futures contract for April delivery at the Henry Hub exhibited considerable variation.  Prices climbed in Monday trading and declined in each of the following two days before climbing on Thursday and Friday to end the week at $3.076 per MMBtu, up roughly 28 cents or nearly 10 percent greater than the previous Friday. This pattern also prevailed for the contracts for delivery in the upcoming months through the November 2002 contract.  Factors contributing to the overall increases included the latest National Weather Service (NWS) forecasts, a robust storage withdrawal in the preceding week, and low gas rig counts.  The 6- to 10-day NWS forecast calls for cold temperatures throughout large sections of the western two-thirds of the country.  In addition, the latest 30-to-90-day outlook released on Thursday, March 14, by the NWS projects warmer than normal temperatures in the Southeast and many of the western states through the early summer months.

 

Spot Prices ($ per MMBtu)	Mon.	Tues.	Wed.	Thurs.	Fri.
	11-Mar	12-Mar	13-Mar	14-Mar	15-Mar
Henry Hub	2.90	2.93	2.96	2.79	2.99
New York citygates	3.21	3.21	3.22	3.01	3.28
Chicago citygate	2.94	2.97	3.00	2.85	3.08
PG&E citygate	3.05	3.06	3.07	2.93	3.22
So. Cal. Border Avg.	2.95	2.95	2.96	2.83	3.10
Futures ($/MMBtu)
April delivery	3.021	3.018	2.870	2.924	3.076
May delivery	3.068	3.063	2.920	2.964	3.114
Source: NGI's Daily Gas Price Index (http://intelligencepress.com)

 

Storage:

Net withdrawals from storage for the week ended Friday, March 8, were 140 Bcf according to the American Gas Association (AGA). This is the second consecutive week that estimated withdrawals were well over 100 Bcf and more than double the previous 5-year average. The cold weather in much of the country in early March may have been the key contributor to the increased utilization of storage resources. The NWS reported that gas-consumer-weighted heating degree-days (HDDs) were 2 percent above normal for the week ending March 9.   HDDs in the Pacific, Mountain, and Central Census divisions ranged between 9 percent and 28 percent above normal, which more than offset the 18- to 20-percent warmer temperatures in the New England and Middle Atlantic divisions.  Despite the elevated stock drawdown, remaining working gas is almost 39 percent or nearly 500 Bcf above the 5-year average of 1,251 Bcf. (See Storage Figure)

 

All Volumes in Bcf	Current Stocks (Fri,3/8)	Estimated Prior 5-Year (1997-2001) Average	Percent Difference from 5 Year Average	Net Change from Last Week	One-Week Prior Stocks (Fri, 3/1)
East Region	919	699	32%	-82	1,001
West Region	250	182	38%	-8	258
Producing Region	567	371	53%	-50	617
Total Lower 48	1,736	1,251	39%	-140	1,876
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:

Gas drilling activity. Rigs drilling for natural gas numbered 610 according to the Baker-Hughes rig count report released on Friday, March 15. This is a decline of 14 rigs or over 2 percent from the prior week. With this decline, the number of rigs moved to its lowest level since April 28, 2000, when rigs numbered 598.  Since reaching its record-setting peak of 1,068 rigs during the week ended July 13, 2001, rigs drilling for gas have declined by roughly 43 percent, which is an average weekly decline rate of about 1.6 percent. The rig count is over 32 percent below the level recorded during the same week last year.  Despite the recent declines, rigs drilling natural gas prospects remain close to historical levels.  The current gas rig count is comparable to the average of 609 rigs for March in the preceding 5 years, which includes the exceptional drilling runup of 2000-2001.  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, March 15, showing significant gains over the previous Friday.  On the NYMEX, the settlement price of the futures contract for April delivery at the Henry Hub climbed about 10 percent over the previous Friday.  Net withdrawals of natural gas from storage were 140 Bcf for the week ended March 8 as a result of cold temperatures in the Lower 48 States.  The number of rigs fell by 14 last week, but the count remains comparable with the preceding 5-year average.