Natural Gas

Overview:

Compared with Wednesday, June 25, natural gas spot prices were lower at all locations in the Lower 48 States in trading on July 2. For the week (Wednesday-Wednesday), prices at the Henry Hub decreased 59 cents or about 10 percent to $5.05 per MMBtu. The price of the NYMEX futures contract for August delivery at the Henry Hub decreased roughly 64 cents per MMBtu or 11 percent since last Wednesday to settle at $5.199 per MMBtu yesterday (July 2). Natural gas in storage increased to 1,662 Bcf as of Friday, June 27, which is about 17 percent below the 5-year average. The spot price for West Texas Intermediate (WTI) crude oil decreased $1.36 per barrel or roughly 4 percent since last Wednesday to trade yesterday at $30.29 per barrel or $5.22 per MMBtu.

 

 

Prices:

Prices have fallen at virtually all market locations since last Wednesday, June 25, with declines of more than 40 cents per MMBtu at most locations. Despite rising cooling load in key consuming market areas of the Northeast, Middle Atlantic, Midwest, and Texas, (See Temperature Map) (See Deviation Map) continuing robust injections into storage in recent weeks may have contributed to the price drops. Lessened demand entering the Fourth of July holiday weekend and falling crude oil prices reinforced the pattern of declining prices. Since Wednesday, June 25, the largest price decreases principally occurred in the Northeast region, falling more than 70 cents per MMBtu. Declines at the Tennessee Pipeline Zone 6, which delivers to Connecticut, Rhode Island and New Hampshire, and at the New York citygate were the largest in the Lower 48 States, falling $1.09 and $1.02 per MMBtu, respectively. Nevertheless, prices remain significantly higher than last year at this time at all market locations, with prices about 60 percent greater than last year's level on average.

 

Spot Prices ($ per MMBtu)	Thur.	Fri.	Mon.	Tues.	Wed.
	26-Jun	27-Jun	30-Jun	1-Jul	2-Jul
Henry Hub	5.51	5.19	5.35	5.22	5.05
New York	6.18	5.57	5.77	5.58	5.38
Chicago	5.54	5.29	5.26	5.22	5.11
Cal. Comp. Avg,*	5.26	4.82	5.06	4.91	4.72
Futures ($/MMBtu)
Jul delivery	5.291	expired	expired	expired	Expired
Aug delivery	5.410	5.362	5.411	5.317	5.199
Sept delivery	5.450	5.404	5.453	5.362	5.249
*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 August delivery at the Henry Hub fell about 64 cents per MMBtu since Wednesday, June 25, to settle at $5.199 per MMBtu on Wednesday, July 2. This is the lowest settlement price for the August contract since April 8, 2003. The basis differential between the Henry Hub spot price and futures prices shows a pattern of increase for each successive month from August 2003 through January 2004, which provides incentives to inject natural gas in storage. Specifically, in trading yesterday (June 25), the August 2003 contract exceeded the Henry Hub spot price by 15 cents per MMBtu, and the January 2003 contract exceeded the spot price by 71 cents. The July 2003 contract expired on Thursday, June 26, 2003, at $5.291 per MMBtu—its lowest level since April 28, 2003.

 

Estimated Average Wellhead Prices
	Dec-02	Jan-03	Feb-03	Mar-03	Apr-03	May-03
Price ($ per Mcf)	3.84	4.47	5.45	6.69	4.71	4.97
Price ($ per MMBtu)	3.74	4.36	5.31	6.53	4.59	4.85
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 1,662 Bcf as of Friday, June 27, 2003, according to the EIA Weekly Natural Gas Storage Report. This is roughly 17 percent below the 5-year average for the report week, and more than 27 percent below the level last year for the same week (See Storage Figure). The implied net injection during the week of June 27 was 97 Bcf, which is about 28 percent more than the 5-year average injection of 76 Bcf for the week, continuing the pattern of robust net injections into storage. Over the last 7 weeks, net additions into storage totaled 762 Bcf or 109 Bcf per week. The year-on-year storage deficit has declined for the eleventh week in a row, falling 21 Bcf to 632 Bcf.

 

All Volumes in Bcf	Current Stocks 6/27/03	Estimated Prior 5-Year (1998-2002) Average	Percent Difference from 5 Year Average	Implied Net Change from Last Week	One-Week Prior Stocks 6/20/03
East Region	907	1,103	-17.8%	60	847
West Region	274	275	-0.4%	9	265
Producing Region	481	633	-24.0%	28	453
Total Lower 48	1,662	2,010	-17.3%	97	1,565
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:

National Petroleum Council Holds Natural Gas Summit: The National Petroleum Council, at the request of Energy Secretary Spencer Abraham, conducted a meeting on June 26 to address the nation's natural gas supply situation. In attendance were over 200 North American energy executives and representatives of major gas consumers, as well as administration officials, congressional lawmakers, consumer advocates, and regulators from the Federal Energy Regulatory Commission and state and local governments. The meeting provided a forum for the exchange of ideas about the current situation of tight supplies and high prices. The discussion recognized that the nation needs more natural gas conservation, increased energy efficiency measures, and a greater focus on energy awareness prior to the next winter heating season. Gas industry representatives repeated their calls for increasing access to federal lands, lifting of moratoria on offshore drilling, streamlining the permitting process for drilling, and speeding up the pipeline certification process. Secretary Abraham announced that DOE would hold a series of regional natural gas conferences to discuss further the ideas and suggestions developed at the summit.

 

FERC LNG Actions: The Federal Energy Regulatory Commission (FERC) informed Dominion Cove Point LNG LP on Monday, June 23, that the company's facilities did not pass an initial agency inspection, conducted in late May. The inspection was triggered by Cove Point LNG's request to receive a test cargo of LNG in July at its terminal in Calvert County, Maryland. In its notification to the company, FERC stated that a number of construction areas, involving such things as instrumentation and electrical systems, offshore platform rehabilitation, and expansion joint replacement, were not complete and required significant efforts before the facility is ready for a test cargo. FERC set a deadline of June 25 for Cove Point LNG to tell the agency when its terminal would be ready for re-inspection. Cove Point responded with a request for re-inspection during the week of July 7, and for weekly inspections thereafter if necessary, in order for Cove Point to receive its first shipment after reactivation on or before July 23. FERC had approved the reactivation of the LNG import terminal in October 2001, as well as an expansion to its storage capacity to 7.8 billion cubic feet (Bcf) through the construction of a fifth storage tank. Currently, the terminal's storage capacity is about 5 Bcf, with a liquefaction capacity of 15 million cubic feet per day and a send-out capacity of 1 Bcf per day.

 

In a separate action, FERC issued a favorable draft environmental impact statement (DEIS) covering the U.S. portion of a proposed 54-mile pipeline that would transport gas from a proposed LNG terminal in the Bahamas to southern Florida. The project sponsor, AES Ocean Express LLC, believes it can complete the construction of the LNG terminal and vaporization facilities proposed to be sited in Ocean City, Bahamas, during the first half of 2004 given quick FERC action and the availability of financing. The proposed AES Ocean pipeline, with a 46-mile subsea portion and a projected cost of $440 million, would deliver gas to Broward County from the proposed terminus of a 40-mile non-jurisdictional leg at the Exclusive Economic Zone boundary between the United States and the Bahamas. From there, it would extend to interconnections with Florida Gas Transmission and to Florida Power and Light's distribution system near its power plant in Fort Lauderdale. The proposed pipeline would be 24 inches in diameter with a throughput capacity of 842,000 MMBtu (about 821 MMcf, depending on the heat content of the gas) per day, and could be in service by the summer of 2004.

 

Summary:

Lightened holiday demand for natural gas and continuing robust injections into storage contributed to declining prices at most locations across the Lower 48 States and at the NYMEX futures market. Working gas in storage increased to 1,662 Bcf, which is 17 percent below the 5-year average.

Natural Gas Summary from the Short-Term Energy Outlook