Overview:  Thursday, August 14, 2003 (next release 2:00 p.m. on August 21)

Natural gas spot prices climbed 25 to 55 cents across the Lower 48 States this week (Wednesday, August 6-Wednesday, August 13). Increases were highest in sun-drenched California, but also significant in the Northeast and Midwest as this summer’s hottest weather to date occurred in parts of the two regions. At the Henry Hub, the spot price increased 43 cents or roughly 9 percent to $5.17 per MMBtu. The price of the NYMEX futures contract for September delivery at the Henry Hub similarly increased, gaining just over 43 cents per MMBtu since last Wednesday to settle at $5.179 per MMBtu yesterday (August 13). Natural gas in storage increased to 2,188 Bcf as of Friday, August 8, which is about 8.5 percent below the 5-year average inventory level for the report week.  The spot price for West Texas Intermediate (WTI) crude oil decreased $0.92 per barrel or 2.9 percent since last Wednesday to trade yesterday at $30.85 per barrel, or $5.32 per MMBtu.

 

 

Prices:

Continued heat in the West and the threat of a tropical depression in the Caribbean helped boost prices at all market locations since last Wednesday, August 6. Another contributing factor to price increases also likely included last Thursday’s report of a 74 Bcf implied net injection into storage, which was the lowest injection since early May, although well within the 5-year range. Following the report, the Henry Hub price increased 17 cents last Friday and continued to tack on gains early this week in two of the past three trading sessions. At $5.17 per MMBtu, the Henry Hub price on Wednesday, August 13, was 10 percent higher than at the start of the month and the highest since July 15. Significant price gains between 40 to 55 cents per MMBtu were reported in the Midwest and the Northeast as temperatures began climbing in the two regions on Tuesday, August 12, and are expected to reach well into the 90s in some areas over the next couple of days. The price for delivery off Tennessee Gas Pipeline in New England gained 44 cents per MMBtu to $5.69. In the Rockies, gains were generally less, including a 27-cent boost to $4.80 per MMBtu.at the Opal, Wyoming, trading point.

 

Spot Prices ($ per MMBtu)	Thur.	Fri.	Mon.	Tues.	Wed.
	7-Aug	8-Aug	11-Aug	12-Aug	13-Aug
Henry Hub	4.85	5.02	5.07	5.06	5.17
New York	5.24	5.39	5.51	5.55	5.68
Chicago	4.87	5.04	5.10	5.14	5.28
Cal. Comp. Avg,*	4.63	4.88	4.98	5.02	5.14
Futures ($/MMBtu)
Sept delivery	5.082	5.037	5.129	5.217	5.179
Oct delivery	5.134	5.092	5.183	5.276	5.234
*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 September delivery at the Henry Hub climbed about 43 cents per MMBtu since Wednesday, August 6, to a close of $5.179 per MMBtu on Wednesday, August 13. As was the case with spot prices, the near-month contract price appeared to receive a lift from last Thursday’s storage report as the price made its biggest move of the week during the Thursday trading session, increasing a little under 34 cents per MMBtu to just over $5.08. In trading this week, the contract added approximately 9 cents on Monday and then again on Tuesday, owing in part to the formation of a tropical disturbance in the Bahamas. With these concerns over a disruption in supply from a tropical storm lessening on Wednesday (only heavy rain is expected in Florida) and a sell-off in the crude oil market, the September contract eased yesterday a little less than 4 cents per MMBtu to about $5.18. The basis differential between the Henry Hub spot price and those of the futures contracts for delivery in each month through January 2004 increases for each successive month to a maximum of almost 59 cents, providing suppliers an incentive to inject gas into storage. The 12-month strip, or the average price for contracts over the next year, closed yesterday at just under $5.25, a gain of 29 cents on the week. 

 

Estimated Average Wellhead Prices
	Feb-03	Mar-03	Apr-03	May-03	Jun-03	Jul-03
Price ($ per Mcf)	5.45	6.69	4.71	4.97	5.35	4.91
Price ($ per MMBtu)	5.31	6.52	4.59	4.84	5.21	4.79
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 2,188 Bcf as of August 8, which is 8.5 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 change for the week was an injection of 82 Bcf, which is 61 percent higher than the 5-year average injection of 51 Bcf and 55 percent higher than last year’s injection of 53 Bcf for the report week. Inventories as of the report date were an estimated 203 Bcf below the 5-year average of 2,391 Bcf, down considerably from this year’s early March gap of 640 Bcf. During the report week, the weather for the country as a whole was about 1.4 percent warmer than normal, as measured by cooling degree days (CDDs) for the week ending August 9, according to the National Weather Service (See Temperature Map.) (See Deviation Map). However, key markets for cooling demand were considerably cooler than normal. In the East South Central, CDDs were 17 percent below normal. In the Pacific region, including California, CDDs were about 9 percent below normal.

 

 

All Volumes in Bcf	Current Stocks 8/8/03	Estimated Prior 5-Year (1998-2002) Average	Percent Difference from 5 Year Average	Implied Net Change from Last Week	One-Week Prior Stocks 8/1/03
East Region	1,272	1,385	-8.2%	54	1,218
West Region	314	317	-0.9%	10	304
Producing Region	602	688	-12.5%	18	584
Total Lower 48	2,188	2,391	-8.5%	82	2,106
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:

Bureau of Land Management Attempts To Ease Drilling Restrictions in West:  On Thursday, August 6, the Bureau of Land Management (BLM) announced new policies that are aimed at reducing constraints on drilling permitting in so-called “focus areas” in the Western United States where potential for oil and gas development is high.  The policies, outlined in an agency directive, were originally contemplated in a Department of Interior report prepared in accordance with provisions of the Energy Policy and Conservation Act and issued earlier this year.  The report provides estimates of oil and gas reserves in energy-rich Western basins and identifies impediments to their development.  The BLM directive instructs BLM land planners “. . . not to unduly restrict access to federal lands, especially in cases where an unnecessary stipulation could result in an abandonment or delay of a project.”  For example, approval of a drilling permit application might be conditioned on site-specific environmental considerations, rather than including the requirements in lease stipulations.   The new policies were effective immediately, and call for state and field offices within the focus areas to use the EPCA report’s findings as guidance in determining needed changes to land use plans by December 31.  The focus areas include:  the Powder River Basin in Wyoming and Montana, the San Juan Basin in New Mexico and Colorado, the Uinta Basin in Utah, the Green River Basin of Wyoming and Colorado, the Ferron Coal Trend in Utah, and the Piceance Basin in Colorado.

 

Natural Gas Summary from the Short-Term Energy Outlook:

EIA projects that natural gas wellhead prices will average $4.50 per MMBtu for the third quarter (July–September) of 2003 (Short-Term Energy Outlook, August 2003), or about 10 cents less than had been estimated in last month’s report. Relatively mild temperatures across much of the country in recent weeks have depressed natural gas spot prices and allowed record storage refill rates. Spot prices at the Henry Hub, which had hovered considerably above $5 per MMBtu on a monthly basis since the beginning of the year, fell below $4.70 per MMBtu during the last week in July.  Only two months ago, Henry Hub spot prices topped $6 per MMBtu. With the reduced cooling demand this summer, record volumes of natural gas have been injected into underground storage facilities. As of August 8, working gas levels were 8.5 percent below the 5-year average, while just two months earlier (June 6), inventories were 25 percent less than the 5-year average. Assuming normal weather and taking into account the recent accelerated buildup in storage, monthly wellhead prices are expected to range between $4.24 and $4.74 per MMBtu through the end of 2003.  Overall in 2003, however, wellhead prices are projected to average almost $2.00 more than the 2002 annual average, or about $4.81 per MMBtu. In 2004, assuming normal weather, prices are projected to drop by about 16 percent as the overall supply situation improves.

Natural gas production is expected to increase by about 3 percent in 2003.  High natural gas prices and sharply higher oil and natural gas field revenues are driving the resurgence in gas-directed drilling activity this year following the downturn in 2002. The number of rigs drilling for natural gas averaged 924 in July and totaled 930 during the first week in August. In 2004, production is expected to remain at modestly improved levels.

Natural gas demand is expected to rise by 0.6 percent in 2003 mainly because of the high weather-related demand during the first quarter of 2003.  Demand for natural gas this summer is expected to be 1.7 percent less than last summer’s level, because of the effect of higher prices on the industrial and electricity-generating sectors.  Also, assuming normal weather, cooling degree-days for the season (Q2 2003 and Q3 2003) will be about 15 percent less than last summer’s levels. In 2004, demand is expected to increase slightly as decreased consumption in the residential sector, assuming normal weather, is offset by higher demand in the industrial sector in response to somewhat lower prices and higher industrial output.

 

Short-Term Natural Gas Market Outlook, August 2003
	History			Projections
	May-03	Jun-03	Jul-03	Aug-03	Sep-03	Oct-03
PRICES ($/MMBtu)
Average Wellhead Price	4.84	5.22	4.84	4.42	4.24	4.28
Residential Price	10.24	11.31	11.87	11.98	11.38	10.10
Electric Utilities Price	5.68	5.43	4.93	4.65	4.68	4.87
SUPPLY (Trillion Cubic Feet)
Total Dry Gas Production	1.648	1.607	1.668	1.673	1.613	1.670
Net Imports	0.282	0.282	0.307	0.321	0.301	0.303
Imports	0.340	0.337	0.365	0.379	0.359	0.363
Exports	0.058	0.055	0.058	0.059	0.058	0.059
Suppl. Gaseous Fuels	0.006	0.005	0.006	0.006	0.006	0.006
Total New Supply	1.936	1.895	1.981	2.000	1.920	1.979
Working Gas in Storage
Opening	0.803	1.217	1.704	2.103	2.433	2.812
Closing	1.217	1.704	2.103	2.433	2.812	3.037
Net Storage Withdrawal	-0.414	-0.487	-0.399	-0.330	-0.379	-0.225
Total Supply	1.523	1.407	1.582	1.670	1.541	1.754
Balancing Item	0.067	0.093	0.091	-0.057	-0.065	-0.221
Total Primary Supply	1.590	1.500	1.673	1.612	1.476	1.534
DEMAND (Trillion Cubic Feet)
Lease & Plant Fuel	0.083	0.080	0.082	0.080	0.075	0.077
Pipeline Use	0.043	0.043	0.051	0.052	0.046	0.048
Delivered to Consumers	1.464	1.377	1.540	1.480	1.355	1.409
Residential	0.248	0.145	0.111	0.102	0.118	0.205
Commercial	0.184	0.149	0.138	0.140	0.143	0.196
Industrial	0.572	0.554	0.576	0.576	0.544	0.588
Electric Power	0.460	0.529	0.715	0.662	0.550	0.420
Total Demand	1.590	1.500	1.673	1.612	1.476	1.534

 

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