Natural Gas

Overview:

Natural gas spot prices declined at nearly all trading locations for a third consecutive week (March 12-19) as temperatures became more spring-like and space-heating demand slackened. For the week (Wednesday-Wednesday), prices at the Henry Hub decreased $0.58 per MMBtu, or 10 percent, to $5.20. The price of the NYMEX futures contract for April delivery at the Henry Hub fell to its lowest point since becoming the near-month contract, decreasing for the week about $0.59 per MMBtu to settle yesterday (Wednesday, March 19) at $5.278. Natural gas in storage decreased to a record low of 636 Bcf as of Friday, March 14, which is more than 50 percent below the 5-year average. The spot price for West Texas Intermediate (WTI) crude oil decreased $7.86 per barrel or about 21 percent since last Wednesday to trade yesterday at $30.01 per barrel or $5.17 per MMBtu.

 

 

 

Prices:

With temperatures already warming and spring's official arrival imminent, anxieties over short-term supply availability appeared to lessen this week as spot prices extended a decline to 3 weeks. Along the Gulf Coast and in Southwest production-areas, declines for the week were generally in the range of $0.45-$0.75 per MMBtu, with many spot prices in the production region dropping below $5 for the first time since mid-January. Declines at trading locations in the Northeast were considerably higher at about $1.60 per MMBtu on the week as the average regional price fell to $5.70 per MMBtu on Wednesday (March 19), bringing the transportation basis from the Henry Hub back down to about 50 cents from its elevated levels of the last two months. The sharpest price movements of the week came last Friday (March 14). On Friday, the spot price for delivery in New York off Transcontinental Gas Pipe Line dropped $1.57 per MMBtu to $5.96, which marked the first time since December 2002 that this price was below $6. Rockies trading proved the exception to the rule on the week as wintry weather led to a strengthening of prices by as much as $0.35 per MMBtu. The price at Opal, Wyoming, rose $0.15 per MMBtu on the week to $4.13.

 

At the NYMEX, the price of the futures contract for April delivery at the Henry Hub on Wednesday (March 19) dropped a little over 6 cents per MMBtu to $5.278 per MMBtu, which is nearly 59 cents, or 10 percent lower, than last Wednesday's daily settlement. The April contract price, which in late February traded as high as $8.101 and at a premium of $2.00 per MMBtu or more to contracts in the out-months, has fallen into general parity with contracts for the summer months as well as the May contract, which closed yesterday at $5.263. For the first time since April became the near-month contract, price backwardation to next winter ended as the April contract price on Thursday, March 13, settled at $5.361, compared with the January 2004 daily settlement price of $5.620.

 

Spot Prices ($ per MMBtu)	Thur.	Fri.	Mon.	Tues.	Wed.
	13-Mar	14-Mar	17-Mar	18-Mar	19-Mar
Henry Hub	5.75	5.17	5.33	5.13	5.20
New York	7.53	5.96	6.04	5.87	5.82
Chicago	5.82	5.23	5.45	5.22	5.36
Cal. Comp. Avg,*	5.64	4.92	5.08	4.87	5.02
Futures ($/MMBtu)
Apr delivery	5.361	5.429	5.507	5.339	5.278
May delivery	5.381	5.424	5.440	5.320	5.263
*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 636 Bcf or 50.4 percent below the 5-year average as of March 14, according to EIA's Weekly Natural Gas Storage Report. (See Storage Figure). This is the lowest aggregate inventory level recorded in EIA's 9-year storage history, surpassing the former low point of 697 Bcf on April 12, 1996. On a regional basis, the Consuming East also showed a record low of 267 Bcf, compared with the former low point of 285 Bcf, which also occurred on April 12, 1996. The implied net withdrawal was 85 Bcf for the Lower 48 States, which is 10 Bcf less than the 5-year average withdrawal for the week. As has been the case for much of the winter, in the Mid Atlantic and New England, where major population centers make up much of the country's space-heating demand, the weather for the week ending March 15 was, respectively, 14 percent and 15 percent colder than normal as measured by heating degree days (HDDs), according to the National Weather Service. (See Temperature Map) (See Deviation Map) A trend of warmer-than-normal temperatures in the West this winter continued as HDDs in the region were up to 44 percent below normal for the week. At 636 Bcf, the week's aggregate inventory level is exactly 1 Tcf below the level for last year's comparable report week.

 

All Volumes in Bcf	Current Stocks 3/14/03	Estimated Prior 5-Year (1998-2002) Average	Percent Difference from 5 Year Average	Implied Net Change from Last Week	One-Week Prior Stocks 3/7/03
East Region	267	680	-60.7%	-64	331
West Region	172	181	-5.0%	-7	179
Producing Region	197	420	-53.1%	-14	211
Total Lower 48	636	1,282	-50.4%	-85	721
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 Industry/Market Trends:

FERC To Hold Technical Conference on Natural Gas Price Information: The Federal Energy Regulatory Commission (FERC) announced on Friday that it would hold an all-day technical conference on April 24 to discuss issues relating to the collection and reporting of natural gas price information. FERC indicated that it would like to hear from all parties with an interest in this issue, including those who report price transactions, those who collect and publish the data, users of the data, and anyone with proposals for improving the current procedures. The Commission further stated its desire to cover all facets of the issue, including how data are collected, questions of the adequacy of data coverage and reliability and veracity of data collected, and how best to serve the price discovery needs of natural gas markets.

 

MMS' Central Gulf Lease Sale Draws Strong Industry Response: Wednesday's (March 19) Central Gulf Lease Sale 185, offered by the Minerals Management Service (MMS) of the Department of the Interior, attracted 793 bids totaling $415 million. High bids in the sale equaled $315.5 million from 74 companies. The strong response to the sale, covering some 561 tracts in about 23.4 million acres offshore Louisiana, Mississippi, and Alabama, apparently reflected the current high natural gas prices and interest from producers in the MMS' royalty relief provisions. The shallow waters of the Gulf, defined as depths of less than 200 meters, drew 374 bids for $237.8 million—by far the most sought-after area. Natural gas wells in this shallow-water shelf area that tap into new deep gas reservoirs (15,000 feet or greater below the seabed) will qualify for exemption from royalty payments on the first 20 Bcf of production. Meanwhile, the deep water Gulf (800-1,599 meters) received 79 bids totaling $89.2 million, while the ultra-deep water areas of 1,600 meters or greater water depth drew 63 bids totaling $32.4 million. The MMS expects that an estimated 270 to 650 million barrels of crude oil and 1.59 to 3.30 Tcf of natural gas will be discovered and produced as a result of this sale.

 

USGS Completes Assessment of Appalachian Basin Resources: Estimates of undiscovered, technically recoverable natural gas in the Appalachian Basin have a mean of 70.2 trillion cubic feet (Tcf), according to the U.S. Geological Survey (USGS). In an assessment released March 10, the USGS also said estimates of oil have a mean of 54 million barrels, and estimates of natural gas liquids have a mean of 872 million barrels in the region, which encompasses New York, Pennsylvania, Ohio, Maryland, West Virginia, Virginia, Kentucky, Tennessee, Georgia, and Alabama. Undiscovered resources differ from hydrocarbon proved reserves, which are in discovered fields and demonstrated with reasonable certainty as recoverable under existing technology and economic conditions. Only a small part of the undiscovered gas, approximately 4.3 Tcf, is in conventional accumulations. The vast majority of the gas resources can be found in unconventional or continuous accumulations such as tight sands, Devonian shale, and coalbed methane, according to the USGS. The USGS released a similar assessment of the Rocky Mountain region in December 2002, noting undiscovered gas totaled about 183 Tcf in five basins.

 

Summary:

Natural gas prices dropped 10 percent or more as spring-like temperatures finally arrived in most of the country. Natural gas in storage declined to 636 Bcf as of March 14, a record low point for inventories. Although inventories are more than 50 percent below the 5-year average, concerns over short-term supply availability appear to be easing with the arrival of spring and the end of the traditional heating season.

 

Natural Gas Summary from the Short-Term Energy Outlook