Overview:

Since Wednesday, July 24, natural gas spot prices have registered gains between 5 and 20 cents at most trading locations in the Lower 48 States. A heat wave rolling through most of the East supported production area prices during the week and prompted a surge in Northeast prices to highs for the season. For the week (Wednesday-Wednesday), the Henry Hub spot price gained $0.13 per MMBtu to an average price of $3.04 yesterday (July 31). The price of the NYMEX futures contract for September delivery at the Henry Hub settled at $2.954 per MMBtu yesterday, 8.6 cents less than last Wednesday's price. Natural gas in storage increased to 2,546 Bcf as of July 26, which exceeds the 5-year average by 16.9 percent. The spot price for West Texas Intermediate (WTI) crude oil rose $0.24 cents per barrel since last Wednesday, trading at $27.02 per barrel or $4.66 per MMBtu.

 

 

Prices:

Natural gas spot prices strengthened along with the rise in temperatures in many regions of the country this week, leading to week-to-week (Wednesday to Wednesday) gains of up to 20 cents at most trading locations along the Gulf Coast and other production areas. In the Northeast, where temperatures were well into the 90s since Monday, prices at many trading locations increased a quarter or more. Prices at Columbia Gas Transmission's Appalachia Pool, which accesses many points in the Northeast, rose 32 cents to $3.40 per MMBtu. At the New York citygate, prices more than doubled on the week, rising $3.81 per MMBtu to an average of $7.07 on Wednesday, which is more than $4 above the Henry Hub price. In each of the past three trading sessions this week, the New York citygate price gained more than $1 per MMBtu. Without similar weather-driven demand, prices in western markets parted ways with the overall strengthening trend across the country. The price of gas at Opal, Wyoming, dropped 6 cents to $1.40 per MMBtu this week. Prices at the Canadian-U.S. border at Sumas, Washington, moved up 3 cents to $1.57 per MMBtu.

 

At the NYMEX, the futures contract for August delivery settled on Monday, July 29, at $2.976 per MMBtu. Despite gains in each of the last three sessions before expiry, the August contract finished $0.26 below the price it began trading ($3.236) as the near-month contract on June 27. On Wednesday, July 31, the futures contract for September delivery closed at $2.954 per MMBtu. Although the closing price yesterday left the near-month contract down 8.6 cents or 3 percent for the week, the September contract has registered mild gains in three of the past four trading sessions, including a 6.3-cent increase yesterday (July 31). The 12-month strip yesterday moved up $0.043 per MMBtu to close at $3.447. The spread between the average Henry Hub spot price and the January 2003 NYMEX price ended the day at almost 63 cents. The spot Henry Hub-January 2003 price spread is down 15 cents from its recent high of 88.6 cents on July 15, yet it remains a strong incentive for storage.

 

Spot Prices ($ per MMBtu)	Thur.	Fri.	Mon.	Tues.	Wed.
	25-Jul	26-Jul	29-Jul	30-Jul	31-Jul
Henry Hub	3.03	2.94	3.06	2.98	3.04
New York	3.44	3.42	4.71	5.85	7.07
Chicago	3.04	2.87	3.00	2.91	3.00
Cal. Comp. Avg,*	2.83	2.77	2.86	2.69	2.68
Futures ($/MMBtu)
Aug delivery	2.902	2.936	2.976	expired	expired
Sept delivery	2.888	2.891	2.905	2.891	2.954
Oct delivery	2.933	2.933	2.930	2.916	2.971
*Avg. of NGI's reported avg. prices for: Malin, PG&E citygate,
and Southern California Border Avg.
Source: NGI's Daily Gas Price Index (http://intelligencepress.com).

 

Storage:

Working gas in storage was 2,546 Bcf or 16.9 percent above the 5-year average for the week ending July 26 according to EIA's Weekly Natural Gas Storage Report. The implied net injection of 60 Bcf for the Lower 48 States was 7.1 percent higher than the 56 Bcf average for the comparable weeks during the past 5 years, but about 13.3 percent short of the net injection of 68 Bcf last year. As a result, the year-on-year inventory surplus fell to 326 Bcf. After being as much as 41 percent higher than the 5-year average in late March at the end of the heating season, inventory levels this week were less than 17 percent above the average. A factor contributing to the decline from 41 to less than 17 percent is simply the expansion of the volume of gas in storage. If the absolute difference between current stocks and the 5-year average had continued at 455 Bcf since late March, the relative difference would have declined to 21 percent above the 5-year average. The implied net change in stocks fell short of last year's change despite generally cooler weather than last year throughout the country last week as measured by cooling degree days (CDDs). For the week ending July 27, CDDs were 2.2 percent less than last year, but 5.9 percent greater than normal. (See Storage Figure) (See Temperature Map) (See Deviation Map)

 

All Volumes in Bcf	Current Stocks 7/26/2002	Estimated Prior 5-Year (1997-2001) Average	Percent Difference from 5 Year Average	Net Change from Last Week	One-Week Prior Stocks 7/19/02
East Region	1,392	1,265	10.0%	47	1,345
West Region	352	295	19.3%	10	342
Producing Region	802	617	30.0%	3	799
Total Lower 48	2,546	2,178	16.9%	60	2,486
Source: Energy Information Administration: Form EIA-912, "Weekly Underground Natural Gas Storage Report," and the Historical Weekly Storage Estimates Database.

 

Other Market Trends:

Natural Gas Rig Counts: The number of rigs drilling for natural gas as of July 19 matched its recent high of 725 recorded on May 24, 2002, but then decreased by 12 to 713 for the week ended Friday, July 26, according to Baker-Hughes Incorporated. Natural gas rigs are over 32 percent below last year at this time when they numbered a near-record high of 1,058. However, natural gas rigs remain almost 3 percent above the 5-year average for the report week. The share of rigs drilling for natural gas has been consistently above 80 percent since early last year. Since the week ended May 17, 2002, rigs drilling for natural gas have comprised 84 percent of total rigs drilling, which is close to a record for the split between gas and oil rigs. Last week, rigs drilling for natural gas constituted nearly 86 percent of rigs drilling in the United States. The strong interest in gas prospects reflects the favorable economics for natural gas projects as prices remain relatively high.

 

Summary:

Spot prices increased at most market locations during the week since July 24 generally 20 cents or less, with the exception of locations in the Northeast where a heat wave in key market areas boosted prices in the New York city area by $3.65 per MMBtu since last Friday. The futures contract for September delivery closed on Wednesday, July 31, at $2.954 per MMBtu, a decrease of 8.6 cents since last Wednesday. As of July 26, storage stocks were 2,546 Bcf, or 16.9 percent higher than the 5-year average.

 

 

 

Natural Gas Summary from the Short-Term Energy Outlook