Natural Gas

Overview:

Spot prices continued at unusually high levels over the past week (Wednesday to Wednesday, February 5-12), although regional trends were mixed. Northeast prices soared, prices in the Midwest and in California rose modestly, and prices at most other market locations declined. At the Henry Hub, the average spot price fell 4 cents per MMBtu for the week, ending trading yesterday (Wednesday, February 12) at $6.20. The NYMEX futures contract for March delivery broke the $6 barrier on Friday, then declined from that level to end trading yesterday at $5.785 per MMBtu. Beginning last Wednesday, the nation returned to the deep freeze after a brief respite of generally warmer-than-normal temperatures that began the last day of January. Average temperatures ranged up to 13 degrees below normal in every region of the country beginning Wednesday and continuing through last weekend. Working gas in storage was 1,371 Bcf as of February 7, 2003, which is about 19 percent below the previous 5-year average. The spot price for West Texas Intermediate (WTI) crude oil rose in 4 of the 5 trading days since last Wednesday, climbing to $35.83 per barrel, or $6.18 per MMBtu, yesterday, an increase of $1.92 per barrel ($0.33 per MMBtu) since Wednesday, February 5.

 

 

 

Prices:

Spot prices were on divergent paths over the past week. Spot prices at most production-area locations fell, while prices in major market areas were mixed. Spot prices at many Northeast market locations increased significantly to average levels exceeding $10 per MMBtu in yesterday's trading. Weekly price increases included a rise of $3.53 per MMBtu in TRANSCO Zone 6 for New York delivery, to $10.92 per MMBtu, and an increase of $6.19 for Algonquin citygates, to $13.81 per MMBtu—the highest price in the nation yesterday. Major pipelines serving the region instituted various restrictions such as severely limiting or eliminating interruptible transportation and increasing penalties for overpulls, which put upward pressure on prices. In the Midwest, price increases were much more modest, as the Chicago citygate price increased just 2 cents to $6.27 per MMBtu. Midcontinent prices fell by an average of 20 cents, as temperatures began to moderate in that region over the past few days. In production areas, West Texas showed the largest average price decrease, falling 31 cents per MMBtu to an average of $5.58 per MMBtu in yesterday's (February 12) trading. East Texas locations fell by an average of 13 cents, to $5.97 per MMBtu, while locations in the Gulf Coast area fell from 2 to 13 cents per MMBtu on the week. The Henry Hub average spot price dropped 4 cents on the week to $6.20 per MMBtu. Prices at the Henry Hub exceeded $6 per MMBtu each day, which is the first time since the week of January 22-26, 2001.

 

Futures prices exhibited net increases over the week, as the settlement price for the near-month contract (for March delivery) settled yesterday at $5.785 per MMBtu—$0.141 higher than last Wednesday. Weekly price increases for out-month contracts beginning with and extending through the next heating season rose even more, with increases of about 18 to 21 cents per MMBtu. On Friday, February 7, the March contract reached $6.043 per MMBtu—highest of any contract for March delivery since futures trading in gas began in 1990. It also reached an approximate two-year high for the near-month contract.

 

Spot Prices ($ per MMBtu)	Thur.	Fri.	Mon.	Tues.	Wed.
	6-Feb	7-Feb	10-Feb	11-Feb	12-Feb
Henry Hub	6.08	6.29	6.34	6.19	6.20
New York	7.15	7.70	8.25	9.87	10.92
Chicago	6.11	6.30	6.40	6.38	6.27
Cal. Comp. Avg,*	5.19	5.30	5.42	5.39	5.43
Futures ($/MMBtu)
Mar delivery	5.828	6.043	5.852	5.977	5.785
Apr delivery	5.578	5.780	5.617	5.722	5.560
*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 1,371 Bcf as of February 7, according to EIA's Weekly Natural Gas Storage Report, with implied net withdrawals of 150 Bcf–the first time in 4 weeks that withdrawals have been less than 200 Bcf (See Storage Figure). This reduced level of withdrawals compared with previous weeks likely reflects the effects of warmer-than-normal temperatures in the Northeast, Midwest, and much of the Mid-Atlantic regions in the first 4 days of the report week. (See Temperature Map) (See Deviation Map). Working gas levels in the Producing region are still within the high-low range over the past 5 years, and West region inventories are just 6 Bcf less than their 5-year high. However, stocks in the Consuming Region East (See Regional Storage Figures), at 716 Bcf, are just 9 Bcf greater than the 5-year weekly low of 707 Bcf, which was recorded for February 9, 2001. The average weekly withdrawal in the Consuming Region East for the final 7 weeks of the heating season over the past 5 years has been about 56 Bcf. If withdrawals over the next 7 weeks in the East match this average, stocks as of March 28 in the East will be about 50 Bcf below the lowest end-of-heating season level over the past 5 years (377 Bcf, end of March 2001). However they would remain roughly 40 Bcf above the record low of 285 Bcf, which occurred on April 12, 1996.

 

All Volumes in Bcf	Current Stocks 2/7/03	Estimated Prior 5-Year (1998-2002) Average	Percent Difference from 5 Year Average	Implied Net Change from Last Week	One-Week Prior Stocks 1/31/03
East Region	716	984	-27.2%	-89	805
West Region	268	228	17.5%	-17	285
Producing Region	387	482	-19.7%	-44	431
Total Lower 48	1,371	1,695	-19.1%	-150	1,521
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:

EIA Releases 2001 Annual Data: The Energy Information Administration (EIA) has posted on its web site the data publication: Natural Gas Annual 2001. With some 25 data tables (many spanning the 5-year period 1997-2001), over 30 graphs and figures, and separate sections for each of the 50 States and the District of Columbia, the Natural Gas Annual 2001 presents EIA's most current and complete annual information about the natural gas industry. The Natural Gas Annual 2001 highlights key data trends and changes within the industry in 2001, and also reflects recent changes in EIA's industry accounting methodology, primarily with respect to the consumption of natural gas for electricity generation. These changes have been driven by the shift in electric power generation from a strictly regulated industry to one in which non-regulated companies hold a major and expanding share of the market. Whereas in prior years natural gas consumption by non-utility generators was counted as part of the industrial sector, EIA now breaks out consumption for electricity generation according to whether the generated electricity is for sale or primarily for use by the company that generates it. The reallocation of a significant volume of gas from the industrial to the electric power sector and the use of a new data source for non-utility gas consumption alters the face of the industry and markets suggested by the data. The Natural Gas Annual 2001 provides the first detailed look at the results of these changes.

 

Natural Gas Summary from the Short-Term Energy Outlook:

EIA projects that natural gas wellhead prices will remain relatively high through the rest of the winter and perhaps well into spring, with prices averaging $4.90 per MMBtu through March and $4.45 in April (Short-Term Energy Outlook, February 2003). Wellhead prices for the overall heating season (November through March), assuming normal weather for the rest of the winter, are expected to average $4.22 per MMBtu, or $1.86 more than last winter's level. Spot prices at the Henry Hub have been generally above $5.00 per MMBtu thus far in 2003, and briefly rose above $6.00 during the third week of January as Arctic weather covered much of the nation. Prices again topped $6.00 on February 4 and stayed above this threshold through February 12 in response to another blast of cold weather. Overall in 2003, average wellhead prices are projected to increase about $1.38 per MMBtu over the 2002 level to $4.25 per MMBtu. This projection is based on the expectation of lower volumes of underground gas in storage compared with last year and continued increases in demand (particularly in the first quarter) over 2002 levels. Cold temperatures since the first of the year have increased heating demand and led to a more rapid drawdown of storage stocks than previously anticipated. As of February 7, 2003, working gas in storage was about 37 percent lower than year-earlier levels and 19 percent below the previous 5-year average. In 2004, continued tightness of domestic natural gas supply is expected to keep the average wellhead price near the 2003 level.

 

Based on new data provided by the Minerals Management Service, estimates of dry natural gas production in 2002 have been revised downward to 18.9 trillion cubic feet (Tcf), which is 2.3 percent less than the 19.4 Tcf produced in 2001. Some of the reduction is due to outages in September and October related to hurricane activity. At least moderate production increases are expected in 2003 and 2004 as high natural gas prices and strong near-term demand pressures drive drilling activity and well completions to very robust levels over the period. Also, after growing by only 1.1 percent in 2002 owing to high stocks and lower demand, net imports of natural gas are expected to increase by 5.6 percent in 2003, which should relieve some of the potential pressure on the domestic market.

 

Total natural gas demand in 2002, based on data reported through September, declined by an estimated 1.4 percent from the 2001 level, mainly because of overall weakness in the industrial sector. However, solid growth in natural gas demand seems likely in 2003, especially if industrial sector consumption expands significantly as expected. In 2004, natural gas demand is projected to rise by an additional 2.4 percent as industrial demand continues its recovery from its 2002 lows.

 

Short-Term Natural Gas Market Outlook, February 2003
	History			Projections
	Nov-02	Dec-02	Jan-03	Feb-03	Mar-03	Apr-03
PRICES ($/MMBtu)
Average Wellhead Price	3.50	3.74	4.08	4.73	5.07	4.45
Residential Price	8.19	7.79	8.05	8.26	8.62	9.25
Electric Utilities Price	4.27	4.61	5.02	5.72	5.98	5.24
SUPPLY (Trillion Cubic Feet)
Total Dry Gas Production	1.53	1.58	1.64	1.47	1.64	1.57
Net Imports	0.32	0.34	0.35	0.32	0.34	0.32
Imports	0.36	0.37	0.38	0.35	0.37	0.34
Exports	0.04	0.04	0.03	0.02	0.03	0.03
Suppl. Gaseous Fuels	0.01	0.01	0.01	0.01	0.01	0.01
Total New Supply	1.858	1.929	2.002	1.801	1.984	1.888
Working Gas in Storage
Opening	3.149	2.933	2.368	1.521	1.153	0.975
Closing	2.933	2.368	1.521	1.153	0.975	1.126
Net Storage Withdrawal	0.216	0.565	0.847	0.368	0.178	-0.151
Total Supply	2.074	2.494	2.849	2.169	2.162	1.737
Balancing Item	-0.145	-0.142	-0.207	0.230	0.089	0.087
Total Primary Supply	1.928	2.352	2.642	2.399	2.250	1.824
DEMAND (Trillion Cubic Feet)
Lease & Plant Fuel	0.098	0.102	0.103	0.093	0.103	0.098
Pipeline Use	0.053	0.068	0.077	0.067	0.063	0.050
Delivered to Consumers	1.778	2.182	2.462	2.239	2.085	1.675
Residential	0.471	0.701	0.885	0.789	0.662	0.418
Commercial	0.273	0.357	0.424	0.388	0.347	0.249
Industrial	0.664	0.736	0.750	0.704	0.699	0.645
Electric Power	0.370	0.388	0.403	0.358	0.377	0.364
Total Demand	1.928	2.352	2.642	2.399	2.250	1.824

 

Source: Energy Information Administration, Short-Term Energy Outlook, February 2003.