Natural Gas

Overview:

Natural gas spot prices have moved up by 10 to 25 cents at most trading locations since Wednesday, September 4. For the week (Wednesday-Wednesday), the average Henry Hub price climbed $0.20 per MMBtu to $3.32 as Tropical Storm Fay temporarily threatened Gulf area production activity and late-season high temperatures triggered cooling demand in key market areas. The price of the NYMEX futures contract for October delivery at the Henry Hub increased a more moderate $0.057 per MMBtu since last Wednesday to settle at $3.250 yesterday. Natural gas in storage increased to 2,855 Bcf, which exceeds the 5-year average by nearly 12.3 percent. The spot price for West Texas Intermediate (WTI) crude oil rose $1.49 per barrel to $29.77, or $5.13 per MMBtu.

 

 

Prices:

Spot prices this week (Wednesday-Wednesday) recovered much of the previous week's losses as hot weather returned to many regions and Tropical Storm Fay stirred fears of possible production shut-ins. The Henry Hub spot price climbed 19 cents to an average of $3.38 per MMBtu last Friday, the highest price at the hub for the week, as Tropical Storm Fay threatened production fields near Galveston, Texas. However, Fay's strength diminished by the next day, and few producers reported shutting in production, according to the Minerals Management Service. Adding to the cash market's strength, hot weather returned to both coasts as temperatures this weekend hit the 90s in parts of California and in New York. For the week, the spot price at the Southern California border gained 20 cents to an average of $3.11 per MMBtu yesterday (Wednesday, September 11). The spot price at the New York citygate climbed $0.16 per MMBtu to an average of $3.60. Rockies prices suffered yet another downturn this week as infrastructure maintenance limited outlets for supplies. Before a mild recovery yesterday, the spot price in Opal, Wyoming, dropped to as low as 67 cents per MMBtu earlier this week. The region's oversupply was compounded by Questar's directive that all holders of interruptible storage would have to empty their supplies from the Clay Basin storage facility because of high storage inventories. Prices at the Questar trading point dropped to an average of 55 cents per MMBtu on Tuesday. Prices on El Paso Natural Gas in the Southwest plummeted on the week as supplies were diverted to the pipeline owing to maintenance on Transwestern Pipeline. On the week, the El Paso non-Bondad trading point in New Mexico suffered the biggest decline, falling 46 cents to $2.16 per MMBtu.

 

At the NYMEX, the price of the futures contract for October delivery at the Henry Hub increased $0.057 per MMBtu on the week to a close of $3.250 yesterday. The near-month contract this week benefited from fears of slowing production and strong prices for crude oil, which rose to near $30 this week owing to reports of relatively low U.S. oil stocks. Concerns over a possible U.S. invasion of Iraq and the renewed fears of terrorism also appeared to contribute to strength in oil prices, which have increased by $2.01 per barrel since the beginning of the month. After a delayed opening yesterday in recognition of the September 11 anniversary ceremonies, the October contract yesterday recorded a loss in value of slightly less than 11 cents per MMBtu. The futures contract for November closed at $3.645 per MMBtu, down 8.9 cents on the day. The 12-month strip, which is the average cost for futures contracts over the next year, moved down 6.4 cents to $3.796 per MMBtu.

 

 

Spot Prices ($ per MMBtu)	Thur.	Fri.	Mon.	Tues.	Wed.
	5-Sep	6-Sep	9-Sep	8-Sep	9-Sep
Henry Hub	3.19	3.38	3.24	3.35	3.32
New York	3.50	3.75	3.62	3.62	3.60
Chicago	3.20	3.40	3.23	3.36	3.35
Cal. Comp. Avg,*	2.96	3.07	2.98	3.12	3.13
Futures ($/MMBtu)
Oct delivery	3.342	3.265	3.399	3.356	3.250
Nov delivery	3.654	3.605	3.744	3.734	3.645
*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 2,855 Bcf or 12.3 percent above the 5-year average for the week ending September 6, according to EIA's Weekly Natural Gas Storage Report. (See Storage Figure) With temperatures in many areas of the country much hotter than last year as measured by cooling degree days (CDDs), the implied net injection for the week was 74 Bcf, which is 4.2 percent higher than the 5-year average injection for the week of 71 Bcf. CDDs were 20 percent higher than the comparable week last year for the country as a whole, but almost double in the Upper Plains region for the week ending September 7. (See Temperature Map) (See Deviation Map) With summer heat dissipating, the industry has historically boosted injections during September. Storage stocks are 183 Bcf higher than a year ago and 313 Bcf higher than the 5-year average for the week.

 

All Volumes in Bcf	Current Stocks 9/6//2002	Estimated Prior 5-Year (1997-2001) Average	Percent Difference from 5 Year Average	Implied Net Change from Last Week	One-Week Prior Stocks 8/30/02
East Region	1,642	1,546	6.2%	52	1,590
West Region	390	324	20.4%	9	381
Producing Region	823	671	22.7%	13	810
Total Lower 48	2,855	2,542	12.3%	74	2,781
Source: Energy Information Administration: Form EIA-912, "Weekly Underground Natural Gas Storage Report," and the Historical Weekly Storage Estimates Database.

Other Market Trends:

FERC Proposes Plan To Protect Critical Energy Infrastructure Information: After examining the issue for nearly a year in the wake of the terrorist attacks of September 11, 2001, the Federal Energy Regulatory Commission (FERC) last week proposed to establish regulations that would limit access to information about the nation's energy infrastructure. In its Notice of Proposed Rulemaking (NOPR), FERC defines "critical energy infrastructure information (CEII)" as information about proposed or existing critical infrastructure that:

• relates to the production, generation, transportation, transmission, or distribution of energy
• could be useful to a person in planning an attack on critical infrastructure
• is exempt from mandatory disclosure under the Freedom of Information Act
• gives strategic information beyond the location of the critical infrastructure.

The NOPR proposes procedures for requesting confidential treatment of CEII, and sets forth a method for handling challenges to the designation of certain information as CEII. The stated overall objective is to protect information designated sensitive, while still allowing efficient access to such information by those with a valid "need to know." In many cases the CEII designation will require the removal of certain information from the public domain.

 

Natural Gas Summary from the Short-Term Energy Outlook:

EIA projects that natural gas wellhead prices will range between $2.71 and $2.75 per MMBtu through October and then increase to $2.92 in November as the heating season gets underway (Short-Term Energy Outlook, September 2002). Prices remained above $2.90 during the last half of August as unusually hot weather across the nation resulted in added cooling demand, placing upward pressure on prices. Now that the summer is nearly over, cooling demand should be tapering off, while at the same time, the heating season has not yet begun. Overall in 2002, wellhead prices are expected to average about $2.73 per MMBtu compared with $4.00 in 2001. Prices during the upcoming heating season (November through March), assuming normal weather, are expected to average $3.20 per MMBtu, which is about $0.84 higher than last winter's price.

 

Domestic dry natural gas production is projected to fall by about 1.7 percent in 2002 compared with the 2001 growth rate of 2.4 percent. Lower natural gas prices have reduced production and resource development incentives from their highs of last year. Still, current supplies, including natural gas in storage, appear to be at very comfortable levels. Working gas in storage has exceeded the highest levels recorded in the previous 5 years since the beginning of the year. By the end of August, working gas storage stocks were about 2,781 Bcf, which is 12.5 percent above the 5-year average and 205 Bcf higher than a year ago. Moreover, natural gas-directed drilling, while down from the record levels of mid 2001, is still quite strong by a longer historical perspective. The gas rig count as of August 30, 2002, was 741, which is 25 percent above the recent low of 591 for the week of April 5, 2002. In 2003, production is expected to rebound by 3.2 percent as demand rises and inventories fall back closer to normal

 

Natural gas demand is expected to increase sharply in November and December and early 2003 because of the expected continuation of solid recovery in the U.S. industrial economy by the fourth quarter of this year and the return of colder weather. The expected increase in natural gas demand for the coming winter, assuming normal weather, is 12 percent above the year-ago level. Natural gas demand for the entire year 2002 is projected to increase by 3.3 percent over 2001 levels in large part because of increased demand for natural gas for power generation. In 2003, natural gas demand growth is expected to increase by 3.6 percent, as the economy continues to recover. Natural gas demand growth is expected across all sectors, with the exception of the electric utility sector. This is because of the still ongoing transfer of ownership of electric power plants from utilities to independent power producers (included in the industrial sector) that stems from deregulation.

Monthly Natural Gas Market Summary
	History			Projections
	Jun-02	Jul-02	Aug-02	Sep-02	Oct-02	Nov-02
PRICES ($/MMBtu)
Average Wellhead Price	2.88	2.81	2.74	2.71	2.75	2.92
Residential Price	8.80	9.23	9.43	9.07	8.09	7.44
Electric Utilities Price	3.26	3.02	2.89	2.82	2.92	3.25
SUPPLY (Trillion Cubic Feet)
Total Dry Gas Prod	1.55	1.60	1.59	1.54	1.60	1.57
Net Imports	0.25	0.28	0.28	0.27	0.28	0.27
Imports	0.29	0.32	0.33	0.31	0.33	0.32
Exports	0.04	0.04	0.05	0.05	0.05	0.05
Suppl. Gaseous Fuels	0.01	0.01	0.01	0.01	0.01	0.01
Total New Supply	1.809	1.881	1.886	1.813	1.884	1.853
Working Gas in Storage
Opening	1.968	2.308	2.558	2.774	3.057	3.220
Closing	2.308	2.558	2.774	3.057	3.220	3.069
Net Storage Withdrawal	-0.340	-0.249	-0.216	-0.283	-0.163	0.151
Total Supply	1.469	1.631	1.669	1.530	1.721	2.004
Balancing Item	0.024	0.020	0.025	0.049	-0.075	-0.080
Total Primary Supply	1.493	1.651	1.694	1.579	1.647	1.924
DEMAND (Trillion Cubic Feet)
Lease & Plant Fuel	0.097	0.102	0.104	0.103	0.107	0.105
Pipeline Use	0.034	0.037	0.038	0.035	0.039	0.050
Delivered to Consumers	1.361	1.512	1.552	1.441	1.500	1.769
Residential	0.175	0.145	0.136	0.151	0.224	0.449
Commercial	0.155	0.152	0.150	0.152	0.195	0.286
Industrial	0.768	0.867	0.925	0.895	0.896	0.894
Elec Utility	0.264	0.348	0.340	0.243	0.185	0.140
Total Demand	1.493	1.651	1.694	1.579	1.647	1.924

 

 

Source: Energy Information Administration, Short-Term Energy Outlook, September 2002.