Natural Gas

Overview:

Since Wednesday, August 28, natural gas spot prices have declined at most locations in the Lower 48 States, generally falling between 1 and 22 cents with steeper declines at some market locations. For the week (Wednesday-Wednesday), prices at the Henry Hub fell 21 cents or roughly 6 percent to $3.12 per MMBtu. Price drops at most locations were driven principally by moderating temperatures since late last week. The price of the NYMEX futures contract for October delivery at the Henry Hub decreased 21 cents since last Wednesday to settle at $3.193 per MMBtu yesterday. Natural gas in storage increased to 2,781 Bcf, which exceeds the 5-year average by nearly 13 percent. The spot price for West Texas Intermediate (WTI) crude oil moved down 3 cents per barrel or less than 1 percent since last Wednesday, trading at $28.28 per barrel or $4.88 per MMBtu.

 

 

Prices:

Spot prices declined late last week as temperatures moderated heading into the Labor Day holiday weekend, which mitigated cooling demand for natural gas and led to week-to-week (Wednesday to Wednesday) price drops of 1 to 22 cents at most markets (See Temperature Map) (See Deviation Map). Prices began last week at relatively high levels on Monday, August 26, driven principally by soaring temperatures in most of the country, then declined as the week progressed and temperatures moderated. Prices reached their low for the week heading into the weekend amid market expectations of lessened demand owing to the holiday weekend. This was followed by rebounds in prices since Tuesday, September 3, as Hurricane Edouard approached the Florida coast about 25 miles south of St. Augustine. Concerns that Edouard might traverse the state and retain enough strength to threaten gas production in the Gulf of Mexico likely contributed to the gains in prices this week. Another contributing factor probably included the 48 cent per barrel increase in the price of crude oil on Wednesday, September 4. In contrast to the overall price decreases this past week, prices climbed by up to 9 cents per MMBtu at some markets in the Northeast and by up to 8 cents at some locations in the Rockies with the notable exception of El Paso, Bondad, where the price climbed 31 cents.

 

At the NYMEX, the price of the futures contract for October delivery at the Henry Hub has decreased 21 cents since Wednesday, August 28, to settle at $3.193 per MMBtu on Wednesday, September 4. Factors contributing to the decline in futures prices likely include the unusually high volumes of natural gas in storage and falling spot prices. Prices of the futures contracts for delivery during the remaining months in 2002 and through the heating season have fallen by 6 to 21 cents per MMBtu since last Wednesday, August 28, with the larger decreases occurring for the more immediate months' contracts, and smaller decreases occurring for the contracts further out into the heating season. Prices of the contracts for the peak winter months of December through February are more than 71 cents above the current Henry Hub spot price. This relative price pattern remains a strong incentive for continued additions of natural gas to storage for the winter heating season.

 

 

Spot Prices ($ per MMBtu)	Thur.	Fri.	Mon.	Tues.	Wed.
	29-Aug	30-Aug	2-Sep	3-Sep	4-Sep
Henry Hub	3.01	2.82	2.82	2.93	2.93
New York	2.95	2.75	2.75	2.87	2.87
Chicago	3.10	2.90	2.90	3.00	3.01
Cal. Comp. Avg,*	2.97	2.80	2.80	2.92	2.91
Futures ($/MMBtu)
Oct delivery	3.250	3.296	holiday	3.132	3.193
Nov delivery	3.555	3.626	holiday	3.487	3.543
*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 2,781 Bcf for the week ended Friday, August 30, 2002, according to the EIA Weekly Natural Gas Storage Report. This is 12.5 percent above the 5-year average for the report week, and almost 8 percent above the level last year for the same week (See Storage Figure). Moreover, this is roughly 53 Bcf or nearly 2 percent above the level entering the heating season at the end of October 2000. The implied net additions were 65 Bcf, which is roughly 5 percent above the 5-year average of 62 Bcf for the report week. Implied net injections were greater than the 5-year average in the East and West consuming regions, climbing 7 Bcf and 2 Bcf above the average build for the report week, respectively. Meanwhile, in the Producing region, injections were 5 Bcf below the 5-year average. If net injections during the remainder of the refill season match the 5-year average, then working gas in storage will be close to 3,300 Bcf by the end of October. This would exceed last year's working gas stocks entering the heating season by about 5 percent.

All Volumes in Bcf	Current Stocks 8/30//2002	Estimated Prior 5-Year (1997-2001) Average	Percent Difference from 5 Year Average	Implied Net Change from Last Week	One-Week Prior Stocks 8/23/02
East Region	1,590	1,496	6.3%	53	1,537
West Region	381	318	19.8%	5	376
Producing Region	810	656	23.5%	7	803
Total Lower 48	2,781	2,471	12.5%	65	2,716
Source: Energy Information Administration: Form EIA-912, "Weekly Underground Natural Gas Storage Report," and the Historical Weekly Storage Estimates Database.

 

 

Other Market Trends:

Standard & Poor's Details Liquidity Issues Before Energy Merchants: Liquidity assessments have become the most crucial component of analyzing the creditworthiness of many energy merchant companies, according to Standard & Poor's. In a recent update on the credit difficulties among marketers, Standard & Poor's said that several ongoing trends have heightened liquidity concerns, noting the survival of several companies will depend on their ability to maintain adequate levels of liquidity over the next several months. In 2002, funds from operations for energy merchants have declined dramatically, owing to both declining commodity prices (particularly power prices) and decreased trading following the Enron bankruptcy. At the same time, several companies are selling assets to meet near-term debt maturities and reduce their debts. According to Standard & Poor's, while the assets provide immediate cash relief, the benefits of the sales are not yet known because companies may be selling assets that generated stable cash flow. Lastly, energy merchants are facing tougher access to capital, and onerous covenants in new bank debt could further reduce financial flexibility. Credit analysts predict that credit quality in the utilities and competitive energy sector will remain under pressure into 2003.

 

Summary:

Spot prices fell at most market locations during the week since August 28 with decreases ranging between 1 and 22 cents. The futures contract price for October delivery fell by 21 cents, settling at $3.193 per MMBtu. As of August 30, working gas storage stocks were 2,781 Bcf, a level well above the maximum for this week during the past 5 years.

 

Natural Gas Summary from the Short-Term Energy Outlook