Natural Gas

Overview:

Since Wednesday, August 27, natural gas spot prices have declined at virtually all market locations in the Lower 48 States. For the week (Wednesday-Wednesday), prices at the Henry Hub fell 44 cents or 9 percent to $4.68 per MMBtu. Lighter cooling demand for natural gas owing to the Labor Day holiday weekend and milder temperatures east of the Rockies likely contributed to the declines. Yesterday (Wednesday, September 3), the price of the NYMEX futures contract for October delivery at the Henry Hub was almost 19 cents less than last Wednesday's price. Natural gas in storage increased to 2,389 Bcf as of August 29, which is 7 percent below the 5-year average. The spot price for West Texas Intermediate (WTI) crude oil moved down $1.75 per barrel or about 6 percent since last Wednesday to $29.43 per barrel or $5.07 per MMBtu.

 

 

 

Prices:

Spot prices fell more than 37 cents at virtually all market locations east of the Rockies, while prices in the West had more modest declines of less than 28 cents per MMBtu. Contributing factors to the fall in prices likely included milder temperatures east of the Rockies, weather forecasts calling for mild temperatures, and falling crude oil prices. In addition, gas production in the Gulf of Mexico appears to have been unaffected by recent tropical disturbances—Tropical Storm Grace made landfall in Texas over the weekend with no significant shut-ins reported, and Hurricane Fabian appears headed for the East Coast, away from the producing area. However, temperatures remained relatively warm in the West, which likely mitigated price declines in the region. The largest drop in price since last Wednesday occurred in Louisiana, where the price fell 59 cents or nearly 12 percent to average $4.51 per MMBtu on Wednesday, September 3. Elsewhere in the East, prices in New York fell 54 cents or 10 percent to $5.02.

 

Spot Prices ($ per MMBtu)	Thur.	Fri.	Mon.	Tues.	Wed.
	28-Aug	29-Aug	1-Sep	2-Sep	3-Sep
Henry Hub	4.93	4.88	4.88	4.62	4.68
New York	5.31	5.17	5.17	4.97	5.02
Chicago	4.97	4.92	4.92	4.67	4.77
Cal. Comp. Avg,*	4.79	4.85	4.85	4.72	4.76
Futures ($/MMBtu)
Oct delivery	4.944	4.731	holiday	4.639	4.694
Nov delivery	5.159	4.981	holiday	4.911	4.961
*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 October delivery at the Henry Hub fell by almost 19 cents during the week to settle at $4.694 per MMBtu on Wednesday, September 3. Prices of the futures contracts for delivery during the remaining months in 2003 fell roughly 20 to 27 cents per MMBtu since last Wednesday. Yesterday (September 3), the settlement prices of these contracts declined between 13 and 15 cents. Prices of the contracts for the peak winter months of December through February are 55 cents or more above the current Henry Hub spot price. This relative price pattern remains a strong incentive for additions of natural gas to storage for the winter heating season.

 

Estimated Average Wellhead Prices
	Mar-03	Apr-03	May-03	Jun-03	Jul-03	Aug-03
Price ($ per Mcf)	6.69	4.71	4.97	5.35	4.91	4.72
Price ($ per MMBtu)	6.52	4.59	4.84	5.21	4.79	4.60
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 2,389 Bcf as of Friday, August 29, 2003, according to the EIA Weekly Natural Gas Storage Report. This is roughly 7 percent below the 5-year average for the report week and 14 percent below the level last year for the same week (See Storage Figure). The implied net injection during the report week was 70 Bcf, which is about 21 percent more than the 5-year average of 58 Bcf for the week, resuming the pattern of larger-than-average net injections into storage. Relatively mild temperatures in the northern tier of the Lower 48 States likely contributed to the above average injections into storage (See Temperature Map.) (See Deviation Map). The year-on-year storage deficit has declined for 14 of the past 15 weeks, falling 5 Bcf to 392 Bcf. To reach the 3 trillion cubic foot mark by November 2003, net injections would have to average roughly 68 Bcf per week over the next 9 weeks.

 

All Volumes in Bcf	Current Stocks 8/29/03	Estimated Prior 5-Year (1998-2002) Average	Percent Difference from 5 Year Average	Implied Net Change from Last Week	One-Week Prior Stocks 8/22/03
East Region	1,418	1,523	-6.9%	54	1,364
West Region	329	329	0.0%	5	324
Producing Region	642	713	-10.0%	11	631
Total Lower 48	2,389	2,564	-6.8%	70	2,319
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 Market Trends:

Marginal Well Production Rises in 2002: Natural gas production from marginal wells rose 65 billion cubic feet (Bcf) in 2002, or about 5 percent, according to the Interstate Oil and Gas Compact Commission (IOGCC). In recently-released results of its annual survey, the IOGCC found that marginal gas production increased to 1,418 Bcf, which is equal to about 10 percent of total onshore production in the Lower 48 States. Marginal wells, also known as stripper wells, are those wells that produce 60 thousand cubic feet (Mcf) per day or less. These wells accounted for 43 percent of the total increase in gas production onshore in 2002. Overall, domestic onshore production increased 149 Bcf last year, according to the IOGCC, which represents the governors of 30 oil- and gas-producing states. The IOGCC noted marginal well production is important in the national economy, particularly to small independent operators, or "mom and pop" operations, who tend to be the operators of marginally-producing wells.

 

Summary:

Moderating cooling demand for natural gas in most parts of the country contributed to declining prices at most locations across the Lower 48 States and at the NYMEX futures market. Working gas in storage increased to 2,389 Bcf, which is 7 percent below the 5-year average.

 

Natural Gas Summary from the Short-Term Energy Outlook