Natural Gas

Overview:

Natural gas spot prices have climbed 10 to 30 cents per MMBtu at most trading locations since Wednesday, January 8. Strong space-heating demand in Northeast and Midwest population centers boosted prices throughout much of the country, but particularly where several interstate pipelines notified shippers of restrictions on their systems. On the week (Wednesday-Wednesday), the Henry Hub spot price climbed 15 cents to an average of $5.22 per MMBtu, while the New York citygate price registered a much steeper increase of $1.20 to an average of $7.46. The NYMEX futures contract for February delivery gained just under 27 cents per MMBtu to a close of $5.43 on Wednesday, January 15. Natural gas in storage as of Friday, January 10, decreased to 2,195 Bcf, which is 0.8 percent below the 5-year (1998-2002) average. The spot price for West Texas Intermediate (WTI) crude oil traded near two-year highs, rising $2.57 per barrel on the week to yesterday's closing price of $33.23 per barrel, or $5.29 per MMBtu.

 

Prices:

Despite slight declines at many trading locations yesterday (Wednesday, January 15), spot prices remained strong throughout the country as an Arctic front brought the coldest weather of the year to the East. The largest daily price change came last Friday, January 10, when prices along the Gulf Coast and other producing regions climbed 15 to 25 cents per MMBtu in response to forecasts of colder weather this week. As the cold front moved closer to population centers, prices strengthened with the Henry Hub average spot price on Tuesday reaching $5.25 per MMBtu, which was its highest average since December 16. Despite a slight 3-cent decline to $5.22 per MMBtu in trading yesterday, the Henry Hub spot price is more than double its trading range of $2.20-$2.40 at this time last year. On the week, the average price for Northeast trading locations increased about 56 cents to $6.99 per MMBtu. Peak-day conditions on several interstate pipelines resulted in significant variability at some markets. Algonquin Gas Transmission notified shippers that imbalances on its pipeline of greater than 2 percent could result in penalties, while Tennessee Gas Pipeline informed shippers that the low temperatures could affect supplies into the pipeline and further jeopardize system integrity. Prices for deliveries off Tennessee and Algonquin have shown the greatest variability in the Northeast region this week, rising on Tuesday to $8.85 and $8.87 per MMBtu before falling 62 and 78 cents, respectively, in yesterday's trading. In contrast to conditions in the East, market centers located in the Rockies and California were relatively settled owing to mild temperatures over much of the region.

 

NYMEX futures settlement prices registered large gains on the week after weather forecasts released yesterday (Wednesday, January 15) predicted the cold temperatures will last until at least the end of the month. The futures contract for February delivery jumped just over 32 cents, or 6 percent, to a close of $5.43 per MMBtu. On the week, the near-month contract gained just under 27 cents. At its closing on Wednesday, the February contract price is the highest for a near-month contract since April 2001, when futures prices were descending from high levels in the winter of 2000-2001. The 12-month strip, which is an average of the monthly futures prices for the coming year, settled at $5.006 per MMBtu, the first time it has risen above $5 this winter.

 

 

Spot Prices ($ per MMBtu)	Thur.	Fri.	Mon.	Tues.	Wed.
	9-Jan	10-Jan	13-Jan	14-Jan	15-Jan
Henry Hub	5.05	5.21	5.22	5.25	5.22
New York	6.79	7.52	7.86	7.81	7.46
Chicago	4.98	5.12	5.14	5.18	5.16
Cal. Comp. Avg,*	4.53	4.64	4.64	4.69	4.67
Futures ($/MMBtu)
Feb delivery	5.304	5.143	5.251	5.107	5.430
Mar delivery	5.229	5.068	5.172	5.055	5.355
*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 2,195 Bcf or 0.8 percent below the 5-year average for the week ending January 10, according to EIA's Weekly Natural Gas Storage Report (See Storage Figure). The implied net withdrawal was 136 Bcf, which is 16 Bcf more than the five-year average withdrawal for the week but 6 Bcf lower than the 142 Bcf pulled from underground storage last year. Across the country, the weather was about 21 percent warmer than normal during the week ending January 11 as measured by heating degree days (HDDs) adjusted for the population with natural gas space heating, according to the National Weather Service. (See Temperature Map) (See Deviation Map.) In the heavily populated New England and Middle Atlantic regions, HDDs were, respectively, 7 and 9 percent lower than normal. Despite the warmer-than-normal temperatures, the net withdrawal was the third highest of this winter season and is significantly higher than last week's withdrawal of 86 Bcf.

 

All Volumes in Bcf	Current Stocks 1/10/03	Estimated Prior 5-Year (1997-2002) Average	Percent Difference from 5 Year Average	Implied Net Change from Last Week	One-Week Prior Stocks 1/3/03
East Region	1,248	1,336	-6.6%	-85	1,333
West Region	329	280	17.5%	-13	342
Producing Region	618	596	3.7%	-38	656
Total Lower 48	2,195	2,213	-0.8%	-136	2,331
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:

FERC Examines Standards For Natural Gas Price-Reporting: Federal Energy Regulatory Commission (FERC) staff raised the issue of questionable price indices in a discussion paper presented to the Commission during its regular weekly meeting yesterday (Wednesday, January 15). Staff asserted that the recent admissions by a number of marketing companies that employees had provided false price information to various industry publications raises doubts about the accuracy of gas prices published by these industry organizations. The FERC staff recommended that the Commission develop minimum price index standards that would have to be met before any set of prices could be used in new pipeline tariffs. Currently, published prices from various industry sources (e.g. Natural Gas Intelligence, Inside FERC) are used for pipelines' cash-out and penalty tariff provisions, and are often referenced in negotiated transportation contracts. In a larger context, staff pointed out that these published price indices are the basis for many physical and financial transactions throughout the industry, and are "central to the functioning of wholesale natural gas markets." The staff recommended four standards for price indices: (1) accuracy, (2) adequacy of coverage, (3) market liquidity information, and (4) verifiability. The Commission took no specific action at yesterday's meeting, but indicated that a technical conference would be arranged in the "not-too-distant future."

 

Summary:

Natural gas spot and futures prices registered further gains as a blast of Arctic cold arrived in many regions of the country and weather forecasts indicated colder temperatures are here to stay until at least the end of the month. Natural gas in storage declined to 2,195 Bcf with implied net withdrawals for the week ending January 10 totaling 136 Bcf. Although withdrawals were higher than the five-year average for the week, inventories remain less than 1 percent below the five-year average.

 

Natural Gas Summary from the Short-Term Energy Outlook