Natural Gas

Overview:

Compared with Wednesday, May 28, natural gas spot prices were higher at all locations in the Lower 48 States in trading on June 4. For the week (Wednesday-Wednesday), prices at the Henry Hub increased 70 cents or about 12 percent to $6.41 per MMBtu. The price of the NYMEX futures contract for July delivery at the Henry Hub increased roughly 36 cents per MMBtu or 5 percent since last Wednesday to settle at $6.375 per MMBtu yesterday (June 4). Natural gas in storage increased to 1,199 Bcf as of Friday, May 30, which is about 29 percent below the 5-year average. The spot price for West Texas Intermediate (WTI) crude oil increased $1.325 per barrel or roughly 5 percent since last Wednesday to trade yesterday at $29.81 per barrel or $5.14 per MMBtu.

 

 

Prices:

Prices have increased at all market locations since last Wednesday, May 28, with gains of more than 40 cents per MMBtu at nearly all locations. Contributing factors to the surge in prices likely include cooler-than-normal temperatures in the Northeast driving heating demand, warmer-than-normal temperatures in the Southeast, Southwest, Mountain and Pacific regions driving cooling demand, continuing concerns about working gas storage levels, and rising crude oil prices. Significant price gains were reported in the Northeast, Louisiana, Texas, Mississippi and Alabama regions where prices climbed from 59 to 78 cents per MMBtu. These increases returned prices to levels prevalent late in the heating season this year. For example, prices at the Algonquin citygate, which serves the New England region posted its highest price since March 13, 2003, when prices averaged $7.46. At $6.88 per MMBtu, prices at the Algonquin citygate were the highest in the Lower 48 States. Meanwhile, prices in the Rocky Mountains region climbed between 40 and 56 cents at most locations. Averaging roughly $5.09 to 5.40 per MMBtu, prices in the Rocky Mountains region remain the lowest in the nation. Prices remain significantly higher than last year at this time at all market locations, with prices about double last year's level on average.

 

Spot Prices ($ per MMBtu)	Thur.	Fri.	Mon.	Tues.	Wed.
	29-May	30-May	2-Jun	3-Jun	4-Jun
Henry Hub	5.76	5.98	6.21	6.25	6.41
New York	6.09	6.34	6.61	6.64	6.82
Chicago	5.76	5.93	6.15	6.18	6.34
Cal. Comp. Avg,*	5.45	5.52	5.81	5.76	5.83
Futures ($/MMBtu)
Jul delivery	6.066	6.251	6.412	6.360	6.375
Aug delivery	6.129	6.310	6.472	6.424	6.435
*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).

 

At the NYMEX, the price of the futures contract for July delivery at the Henry Hub gained about 36 cents per MMBtu since Wednesday, May 28, to settle at $6.375 per MMBtu on Wednesday, June 4. The basis differential between the Henry Hub spot price and the futures contracts for delivery in each month through the rest of the injection season has converged with the spot price, which may reflect a tight natural gas market. However, the futures prices for delivery in December 2003 and January 2004 continue to exceed the spot price by more than 25 cents per MMBtu, providing suppliers strong incentives to inject gas into storage.

Estimated Average Wellhead Prices
	Nov-02	Dec-02	Jan-03	Feb-03	Mar-03	Apr-03
Price ($ per Mcf)	3.59	3.84	4.47	5.45	6.69	4.71
Price ($ per MMBtu)	3.50	3.74	4.36	5.31	6.53	4.59
Note: The price data in this table are a pre-release of the average wellhead price that will be published in forthcoming issues of the Natural Gas Monthly. Prices were converted from $ per Mcf to $ per MMBtu using an average heat content of 1,025 Btu per cubic foot as published in Table A2 of the Annual Energy Review 2001.
Source: Energy Information Administration, Office of Oil and Gas.

Storage:

Working gas in storage was 1,199 Bcf as of Friday, May 30, 2003, according to the EIA Weekly Natural Gas Storage Report. (See Storage Figure) This is nearly 29 percent below the 5-year average for the report week, and over 39 percent below the level last year for the same week. The implied net injection during the week of May 30 was 114 Bcf, which is roughly 28 percent higher than the 5-year average injection of 89 Bcf for the week. This is the first triple-digit injection of the refill season, and the largest net injection recorded in the 9-year history of the EIA Weekly Natural Gas Storage Report database. Net injections in the East region were 70 Bcf, which is 25 percent greater than the 5-year average, while net injections were 62 percent above the 5-year average of 21 Bcf in the Producing region. In contrast, net injections were 3 Bcf or 23 percent below the 5-year average in the West region. Net storage additions were at record highs despite cooler-than-normal temperatures in Middle Atlantic and New England regions, which contributed to lingering heating demand for natural gas (See Temperature Map) (See Deviation Map). Meanwhile, warmer-than-normal temperatures in the Pacific and Rocky Mountains regions likely spurred cooling demand for natural gas. The year-on-year storage deficit declined last week, falling 7 Bcf to 755 Bcf. This is the sixth straight week that the year-on-year storage deficit has declined

 

All Volumes in Bcf	Current Stocks 5/30/03	Estimated Prior 5-Year (1998-2002) Average	Percent Difference from 5 Year Average	Implied Net Change from Last Week	One-Week Prior Stocks 5/23/03
East Region	629	889	-29.2%	70	559
West Region	226	236	-4.2%	10	216
Producing Region	344	558	-38.4%	34	310
Total Lower 48	1,199	1,683	-28.8%	114	1,085
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 Approves New Pipeline Capacity in the Southwest and Rockies: The Federal Energy Regulatory Commission (FERC) this week approved two major natural gas pipeline projects, which will increase deliverability in the Southwest and out of the Rockies. On Wednesday, June 4, El Paso Natural Gas received approval for its "Power-Up" project, which will expand the capacity of the pipeline system by 320 million cubic feet per day (MMcf/d). The $173 million expansion will allow El Paso to meet the needs of customers off its Line 2000 segment, which is a recently converted oil pipeline that runs from McCamey, TX, to Ehrenberg, AZ. The expansion will increase the overall capacity of the Line 2000 segment to 550 MMcf/d, according to the FERC. Another major pipeline project, the Grasslands Pipeline, also passed FERC scrutiny on Monday, June 3. Grasslands will add 80,000 Mcf/d of deliverability out of the Powder River Basin in Wyoming and Montana through the construction of 253 miles of 16-inch-diameter pipeline. Williston Basin Interstate Pipeline has proposed the project to provide market access for the increasing coalbed methane production in the region. The Grasslands Pipeline will interconnect in North Dakota with Northern Border Pipeline, which extends to major Midwestern markets such as Chicago.

 

Summary:

Continuing tightness in the natural gas market contributed to rising prices at most locations across the Lower 48 States, and at the NYMEX futures market. Net injections into storage were 114 Bcf, 28 percent greater than the 5-year average, and the highest net injection recorded in the United States in the 9-year history of the Weekly Natural Gas Storage Report.

 

 

Natural Gas Summary from the Short-Term Energy Outlook