Natural Gas

Overview:

Spot and futures prices fell a nickel to 20 cents per MMBtu this week (Wednesday-Wednesday, July 16-July 23), as the outlook for meeting targeted storage levels for this winter improved and the lack of weather extremes in major eastern gas-consuming markets again dampened cooling demand. While price movements were slight on a week-to-week comparison, the spot price at the Henry Hub dropped to a new 15-week low of $4.88 per MMBtu. On the NYMEX, the settlement price of the futures contract for August delivery settled yesterday (July 23) at $4.876 per MMBtu. EIA reported that working gas inventories were 1,949 Bcf as of Friday, July 18, which is 12.8 percent below the previous 5-year (1998-2002) average. The spot price for West Texas Intermediate (WTI) crude fell $1.07 per barrel on the week as developments in Iraq improved prospects for a more settled environment in the country. The WTI spot price yesterday was $30.13 per barrel, or $5.19 per MMBtu.

 

 

Prices:

Although tropical storm activity has been above average this year, there has been little impact on natural gas markets. Tropical Depression 6 showed up in the eastern Caribbean early this week, boosting prices temporarily. However, the depression was downgraded to a tropical wave on Monday night, and prices returned to a general downward trend. The Henry Hub spot price yesterday (July 23) dropped to $4.88 per MMBtu, a decline of 12 cents since last Wednesday (July 16) and the first time the price has fallen below $4.90 per MMBtu since April 2. While still high relative to prior years, prices at the Henry Hub and throughout much of the production region along the Gulf Coast and Texas have declined approximately 25 percent since their recent highs in early June. Trading at Midcontinent pricing points this week resulted in declines of a dime or more for a regional price average of $4.78 per MMBtu, as Chicago and other Midwest market locations that are connected to the supply region by pipeline experienced temperatures in the 70s and 80s. A lack of cooling demand and the loss of load from price-sensitive industrials have allowed a much higher than average pace of storage injections since early June, easing concerns over reaching adequate storage levels by the beginning of the heating season. In the Northeast, the price at New York citygates off of Transcontinental Gas Pipe Line dropped yesterday to $5.30 per MMBtu, or 6 cents less than last Wednesday, owing to mild weather arriving in the region.

 

Spot Prices ($ per MMBtu)	Thur.	Fri.	Mon.	Tues.	Wed.
	17-Jul	18-Jul	21-Jul	22-Jul	23-Jul
Henry Hub	4.97	5.01	5.11	5.04	4.88
New York	5.33	5.33	5.43	5.42	5.30
Chicago	4.98	5.02	5.09	5.05	4.90
Cal. Comp. Avg,*	4.92	4.90	5.02	4.95	4.81
Futures ($/MMBtu)
Aug delivery	5.050	5.022	5.107	4.868	4.876
Sept delivery	5.058	5.015	5.099	4.848	4.841
*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 futures contract for August delivery drifted 6 cents lower this week (Wednesday-Wednesday) to a daily settlement yesterday of $4.876 per MMBtu. The near-month contract reached a recent low of $4.868 on Tuesday (July 22) as concerns over Tropical Depression 6 eased, before regaining about a penny in trading yesterday. The August contract is currently priced about 27 percent lower than its recent (June 6) high of $6.58 per MMBtu. Nonetheless, it is about 64 percent higher than the expiry price of the August 2002 contract ($2.976). For the first time since early June, the August contract has regained a slight premium (3.5 cents per MMBtu) to the September contract, likely reflecting a lessening of concerns over whether buyers will be hard-pressed to build storage during the critical shoulder months this fall. The January 2004 contract, which is the highest priced contract in the 12-month strip at $5.44 per MMBtu, fell just under 8 cents on the week.

 

 

Estimated Average Wellhead Prices
	Jan-03	Feb-03	Mar-03	Apr-03	May-03	Jun-03
Price ($ per Mcf)	4.47	5.45	6.69	4.71	4.97	5.35
Price ($ per MMBtu)	4.36	5.31	6.52	4.59	4.84	5.21
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 underground storage was 1,949 Bcf as of July 18, which is 12.8 percent below the 5-year average inventory level for the report week, according to EIA's Weekly Natural Gas Storage Report (See Storage Figure). The implied net injection for the week totaled 83 Bcf, which is 22 percent higher than the 5-year average injection of 68 Bcf and 30 percent higher than last year's injection of 64 Bcf for the report week. This week's net injection brings working gas storage levels back within the 5-year range (a high of 2,486 Bcf in 2002 and a low of 1,921 Bcf in 2000) for the first time since February 22, 2003. For the second consecutive week, net injections in the Producing region totaled 19 Bcf, far outpacing the average injection of 10 Bcf for the week, despite the presence of Hurricane Claudette in the Gulf (see Other Market/Industry Trends below). During the report week, the weather for the country as a whole was about 4 percent cooler than normal, as measured by cooling degree days (CDDs) for the week ending July 19, according to the National Weather Service (See Temperature Map.) (See Deviation Map). Moreover, key markets for cooling demand were considerably cooler than normal. In the South Atlantic Census division, CDDs were 25 percent below normal. In the MidAtlantic division, CDDs were 16 percent below normal. So far this refill season, CDDs have numbered 3 percent less than normal and 15 percent lower than last year.

 

All Volumes in Bcf	Current Stocks 7/18/03	Estimated Prior 5-Year (1998-2002) Average	Percent Difference from 5 Year Average	Implied Net Change from Last Week	One-Week Prior Stocks 7/11/03
East Region	1,097	1,263	-13.1%	58	1,039
West Region	300	299	0.3%	6	294
Producing Region	552	672	-17.9%	19	533
Total Lower 48	1,949	2,235	-12.8%	83	1,866
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:

Minerals Management Service Announces Gulf of Mexico Lease Sales: The Minerals Management Service (MMS), Department of the Interior, recently issued details on two upcoming lease sales in the Gulf of Mexico. The first one, Final Sale 187, encompassing 3,996 blocks covering almost 22 million acres in the Outer Continental Planning Area of the western Gulf, will be held August 20. The lease area extends from 14 to 357 kilometers (about 9 to 222 miles) offshore Texas and Louisiana in water depths ranging from 8 meters to more than 3,000 meters (about 26 to more than 9,800 feet). The MMS estimates that production from leases in this area could range from 136 to 262 million barrels of oil and 800 to 1,440 billion cubic feet (Bcf) of natural gas. The second one, Sale 189, would encompass 256 blocks covering about 1.47 million acres in the eastern Gulf Outer Continental Shelf Planning Area. Tentatively scheduled for December 10, Sale 189 would be the twelfth lease offering in the eastern Gulf. MMS believes that this offering could be very promising because of oil discoveries already made by two producers in or near the area of the proposed lease blocks. MMS estimates that from 65-85 million barrels of oil and 265-340 Bcf of gas could be economically recoverable in the proposed area, which extends from about 160 to 315 kilometers offshore (100 to 196 miles) in water depths of 1,600 to more than 3,425 meters (about 5,250 feet to over 11,200 feet).

 

Minerals Management Service Estimates Hurricane Claudette Impacts: The MMS published its final tally of the impacts of Hurricane Claudette on oil and gas production in the Gulf of Mexico via its website: http://www.gomr.mms.gov/index.html last Thursday, July 17. According to MMS, evacuations of platforms and rigs and volumes of oil and gas shut-in because of the storm reached their peaks on Tuesday, July 15, as Claudette moved through the Gulf and made landfall on the Texas coast near Matagorda Island. According to reports gathered from 39 companies that day, 287 of 4,000-plus platforms and 47 of 140 rigs operating had been evacuated, and production shut-ins reached more than 418 thousand barrels of oil and nearly 2.7 billion cubic feet (Bcf) of natural gas. All told, between Friday, July 11 and Thursday, July 17, Claudette held up the production of about 1.27 million barrels of oil and 8.0 Bcf of natural gas.

 

Summary:

Spot and futures prices fell for a second consecutive week, as temperatures were moderate in most major Midwest and East population centers and the outlook continued to improve for reaching targeted storage levels by the beginning of the winter. The Henry Hub spot price dropped to $4.88 per MMBtu, which is a 15-week low. Working gas in storage as of July 18 increased by 83 Bcf to 1,949 Bcf.

 

 

Natural Gas Summary from the Short-Term Energy Outlook