Overview:  Thursday, October 10, 2002 (next release 2:00 p.m. on October 17)

Since Wednesday, October 2, natural gas spot prices at most Gulf Coast markets have dropped $0.20 to $0.80 per MMBtu with the passing of Hurricane Lili. Although offshore producers and pipeline companies are still working to return supply operations to normal, infrastructure damage appears minimal. For the week (Wednesday-Wednesday), prices at the Henry Hub fell 33 cents or slightly less than 8 percent to $3.91 per MMBtu. The price of the NYMEX futures contract for November delivery at the Henry Hub decreased slightly more than 24 cents since last Wednesday to settle at $3.918 per MMBtu yesterday (October 9).  Natural gas in storage as of October 4 increased to 3,080 Bcf, which exceeds the 5-year average by 9 percent. The spot price for West Texas Intermediate (WTI) crude oil moved down $1.28 per barrel or more than 4 percent since last Wednesday, trading at $29.31 per barrel or $5.05 per MMBtu.

 

 

Prices:

Spot prices spiraled downward last Friday (October 4) along with Hurricane Lili’s downgrade from a Category 4 to a Category 2 storm. Prices at trading locations in the path of the storm along the Louisiana and East Texas Gulf Coasts declined most precipitously, as fears of extensive infrastructure damage faded. Prices at the Henry Hub, which was shut down for part of the week, dropped 41 cents per MMBtu to an average of $3.85 per MMBtu on the day. The significant decline in prices spread to key market areas as well, with marketers appearing to have little problem in meeting slack demand at the other end of the pipelines. After reaching a high of $5.00 per MMBtu earlier in the week, the New York citygate price ended the week down 84 cents to an average of $4.16 on Friday. Since late last week, however, spot prices along the Gulf Coast and other trading locations have recovered modestly, with the average price yesterday (October 9) at the Henry Hub averaging $3.91 per MMBtu. Trading in the Rockies this week partially offset rare gains from the previous week. After a summer of depressed prices, prices gained nearly $1.00 per MMBtu at several Rockies trading locations during the previous week (Wednesday, September 25-Wednesday, October 2), owing in part to a production shut-in of about 400 MMcf per day in the Jonah gas field. However, by Friday (October 4), supplies returned to normal and the price gains proved to be short-lived. On the week, the price at Opal, Wyoming, fell $1.05 per MMBtu to an average of $1.76 yesterday.

 

On the NYMEX, the futures contract for November delivery settled at $3.918 per MMBtu on Wednesday (October 9), a decline of slightly more than 24 cents on the week. The sharpest price movement of the week occurred last Thursday as the downgrade of Hurricane Lili resulted in a drop of 43.6 cents per MMBtu to $3.724. Since last Thursday, the near-month contract has regained strength, climbing modestly in four consecutive sessions on continued concerns about storm damage, although limited, and a possible conflict with Iraq. The strip price of settlement prices for futures contracts for delivery in the ensuing 12 months is hovering near the $4-mark, settling yesterday at $3.965 per MMBtu. The January 2003 contract gained 2.2 cents per MMBtu to settle at $4.265.

 

 

Spot Prices ($ per MMBtu)	Thur.	Fri.	Mon.	Tues.	Wed.
	3-Oct	4-Oct	7-Oct	8-Oct	9-Oct
Henry Hub	4.26	3.85	3.77	3.86	3.91
New York	4.97	4.16	4.12	4.21	4.24
Chicago	3.97	3.68	3.75	3.87	3.94
Cal. Comp. Avg,*	3.40	3.07	3.33	3.46	3.48
Futures ($/MMBtu)
Nov delivery	3.724	3.739	3.740	3.862	3.918
Dec delivery	3.959	3.969	3.990	4.120	4.158
*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 underground storage was 3,080 Bcf for the week ended Friday, October 4, according to the EIA Weekly Natural Gas Storage Report.  The week’s implied net injection of 42 Bcf was about 35 percent less than the 5-year average of 65 Bcf. (See Storage Figure)  With tropical storms limiting supply from the Gulf of Mexico area for the second week in a row, the Producing Region registered a net withdrawal of 3 Bcf for the week. The net withdrawal for the region followed an injection of just 1 Bcf the previous week, when Tropical Storm Isidore also resulted in production shut-ins. Injections in the East Consuming Region fell to 39 Bcf, or about 13 percent from the 5-year average of 45 Bcf. With the relatively low injection last week, the storage differential compared with the 5-year average was 9 percent as the difference in volumes dropped to 254 Bcf. Temperatures fell below normal in the West for the week ending October 5, while warmer-than-normal temperatures blanketed the East.(See Temperature Map) (See Deviation Map)  In the Northeast, warm temperatures limited heating-degree days (HDDs) to just 33 percent of normal HDDs according to the National Weather Service. In fact, temperatures across the country remained moderate and likely generated relatively little weather-driven demand.

 

All Volumes in Bcf	Current Stocks 10/04/02	Estimated Prior 5-Year (1997-2001) Average	Percent Difference from 5 Year Average	Implied Net Change from Last Week	One-Week Prior Stocks 9/27/02
East Region	1,810	1,737	4.2%	39	1,771
West Region	406	348	16.7%	6	400
Producing Region	864	742	16.4%	-3	867
Total Lower 48	3,080	2,826	9.0%	42	3,038
Source:  Energy Information Administration:  Form EIA-912, "Weekly Underground Natural Gas Storage Report," and the Historical Weekly Storage Estimates Database.  Row and column sums may not equal totals due to independent rounding.

 

Other Market Trends:

Storm Shut-ins Continue in Gulf of Mexico:  A week after Hurricane Lili first hit production areas in the Gulf of Mexico, shut-ins of natural gas production still total 1.4 Bcf a day, according to the Minerals Management Service (MMS). In it most recent update of production statistics (released Wednesday, October 9), MMS said that 44 platforms and 1 rig were still out of operation. Shut-ins have steadily decreased since reaching a high of 9.9 Bcf per day last Friday (October 4). At that time, MMS reported evacuations at a total of 748 platforms and 96 rigs out of service. At their highest level, shut-ins represented approximately 75 percent of natural gas production in the Gulf, which is the source of roughly 25 percent of the country’s production. MMS estimates that there are a total of 4,000 platforms in the Gulf (although many are unmanned). There are between 20,000 and 30,000 workers in the offshore at any one time.

FERC Seeks Transparency of Financial Information: The Federal Energy Regulatory Commission (FERC) on Wednesday (October 9) voted to expand its accounting regulations to include reporting of new financial information by a wide variety of market participants. FERC issued a Final Rule that directs public utilities, licensees, natural gas companies and oil pipelines to report changes in the fair value of certain investment securities, derivatives and hedging activities. FERC noted that the action stems, in part, from recent accounting rules issued by the Financial Accounting Standards Board. The changes will allow FERC an understanding of the nature and extent to which hedging activities are used by electric utilities and gas companies, and the impact on the companies’ financial condition. FERC deferred action on the continuation of waivers to the Commission’s financial reporting rules to power marketers, gas marketers, and power producers. FERC said that it will address reporting by marketers separately. 

Natural Gas Summary from the Short-Term Energy Outlook:

EIA projects that natural gas wellhead prices will range from $2.91 to $3.19 per MMBtu through December 2002 and then increase to $3.53 in January 2003, the peak demand month of the heating season (Short-Term Energy Outlook, October 2002). Natural gas prices climbed sharply in late September as hurricanes Isidore and Lili caused production shut downs in the Gulf of Mexico. However, this price surge is expected to be short-lived, unless the weather in October is unusually cold or if additional storm activity in the Gulf curbs production further. Overall in 2002, wellhead prices are expected to average about $2.76 per MMBtu compared with $4.00 in 2001. Prices during the upcoming heating season (November through March), assuming normal weather, are expected to average $3.32 per MMBtu, which is about $0.96 higher than last winter’s price. Prices to residential customers during the heating season are expected to average $7.55 per MMBtu compared with $7.14 last winter.

 

Domestic dry natural gas production is projected to fall by about 1.2 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 remained well above the previous 5-year average since the beginning of the year. As of October 4, 2002, working gas stocks were 3,080 Bcf, which is 9 percent greater than the 5-year average and about 3 percent greater than last year at the same time. Furthermore, natural gas-directed drilling, while down sharply from 2001 levels, is still quite strong by a longer historical perspective. The weekly gas rig count in September averaged 736, which is nearly 25 percent more than the recent low of 591 for the week of April 5, 2002. In 2003, production is expected to rebound by 2.8 percent as demand rises and inventories fall back closer to normal.

 

Natural gas demand is expected to increase through the rest of 2002 and into 2003 because of the expectation of a continued upswing in the U.S. industrial economy in the next few months and the return of colder weather. Overall in 2002, natural gas demand is projected to increase by 3.6 percent over 2001 levels as higher estimated demand in the industrial and power sectors more than offsets the declines in space-heating demand in the first quarter of 2002. Also, heating-related demand during the fourth quarter of 2002 is expected to be greater than during the same period in 2001. In 2003, natural gas demand growth is expected to increase by 3.5 percent as the economy continues to recover. In 2003, natural gas demand growth is expected across all sectors.

 

Short-Term Natural Gas Market Outlook, October 2002
	History			Projections
	Jul-02	Aug-02	Sep-02	Oct-02	Nov-02	Dec-02
PRICES ($/MMBtu)
Average Wellhead Price	2.81	2.70	2.70	2.91	3.15	3.19
Residential Price	9.32	9.44	9.05	8.07	7.49	7.35
Electric Utilities Price	3.15	3.05	2.99	3.18	3.57	3.80
SUPPLY (Trillion Cubic Feet)
Total Dry Gas Production	1.60	1.59	1.54	1.60	1.57	1.62
Net Imports	0.28	0.29	0.27	0.29	0.28	0.30
Imports	0.32	0.33	0.31	0.33	0.32	0.34
Exports	0.04	0.04	0.04	0.04	0.04	0.04
Suppl. Gaseous Fuels	0.00	0.00	0.00	0.00	0.00	0.01
Total New Supply	1.877	1.882	1.812	1.888	1.853	1.917
Working Gas in Storage
Opening	2.308	2.558	2.792	3.058	3.221	3.070
Closing	2.558	2.792	3.058	3.221	3.070	2.589
Net Storage Withdrawal	-0.249	-0.234	-0.266	-0.163	0.151	0.481
Total Supply	1.627	1.648	1.546	1.725	2.004	2.398
Balancing Item	-0.002	0.027	0.068	-0.058	-0.076	-0.010
Total Primary Supply	1.625	1.675	1.615	1.666	1.928	2.388
DEMAND (Trillion Cubic Feet)
Lease & Plant Fuel	0.105	0.107	0.106	0.112	0.110	0.112
Pipeline Use	0.040	0.040	0.036	0.039	0.049	0.064
Delivered to Consumers	1.480	1.528	1.473	1.516	1.770	2.212
Residential	0.139	0.131	0.150	0.228	0.449	0.739
Commercial	0.151	0.149	0.151	0.194	0.285	0.403
Industrial	0.841	0.903	0.910	0.905	0.894	0.941
Elec Utility	0.349	0.345	0.262	0.190	0.141	0.128
Total Demand	1.625	1.675	1.615	1.666	1.928	2.388

 

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