Overview:  Thursday, October 9, 2003 (next release 2:00 p.m. on October 16)

Since Wednesday, October 1, natural gas spot prices have increased at virtually all market locations in the Lower 48 States.  For the week (Wednesday-Wednesday), prices at the Henry Hub increased 37 cents or 8 percent to $4.84 per MMBtu.  Prices climbed despite moderating temperatures in the Lower 48 States as the market expected a return to cold temperatures.  Yesterday (Wednesday, October 8), the price of the NYMEX futures contract for November delivery at the Henry Hub was over 47 cents more than last Wednesday’s price.  Natural gas in storage increased to 2,863 Bcf as of October 3, which is about 1 percent below the 5-year average.  The spot price for West Texas Intermediate (WTI) crude oil moved down $0.17 per barrel or about 1 percent since last Wednesday to $29.60 per barrel or $5.148 per MMBtu.

 

 

Prices:

Spot prices have climbed more than 30 cents at nearly all market locations east of the Rockies since last Wednesday (October 1), while prices in the West had more modest increases of less than 29 cents per MMBtu.  At the New York citygate and Algonquin citygate, which serves the New England area, prices climbed 44 and 49 cents per MMBtu to $5.24 and $5.34, respectively.  The largest increase in price since last Wednesday occurred in Texas, where the price spiked 54 cents or nearly 13 percent to average $4.83 per MMBtu on Wednesday, October 8. The majority of the increases in spot prices have occurred since Monday, October 6, as prices climbed between 20 and 51 cents.  Contributing factors to the increase in prices likely included market expectations regarding a colder than normal winter and continued larger than average storage additions.

 

Spot Prices ($ per MMBtu)	Thur.	Fri.	Mon.	Tues.	Wed.
	2-Oct	3-Oct	6-Oct	7-Oct	8-Oct
Henry Hub	4.42	4.33	4.40	4.65	4.84
New York	4.82	4.74	4.83	5.06	5.23
Chicago	4.63	4.63	4.55	4.79	5.02
Cal. Comp. Avg,*	4.48	4.28	4.44	4.62	4.77
Futures ($/MMBtu)
Nov delivery	4.686	4.767	4.904	5.140	5.148
Dec delivery	4.964	5.034	5.183	5.405	5.411
*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 November delivery at the Henry Hub climbed more than 47 cents during the week to settle at $5.148 per MMBtu on Wednesday, October 8.  Prices of the futures contracts for delivery during the remaining months in the 2003-2004 heating season increased roughly 40 to 47 cents per MMBtu since last Wednesday.  Despite moderating weather conditions in the Lower 48 States, futures prices rallied on Friday, October 3, as the market expected an imminent return to cold temperatures.  As futures prices surged, the contracts for delivery in the heating season months increasingly traded at a premium to the Henry Hub spot price, with the November 2003 and the January 2004 contracts peaking at more than 50 and 95 cents above the Henry Hub spot price Yesterday, prices of the contracts for the peak winter months of December through February were 57 cents to 73 cents higher than 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
	Apr-03	May-03	Jun-03	Jul-03	Aug-03	Sep-03
Price ($ per Mcf)	4.71	4.97	5.35	4.91	4.72	4.58
Price ($ per MMBtu)	4.59	4.84	5.21	4.79	4.60	4.46
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.

 

Hurricane Isabel caused most federal government operations to be suspended on Thursday and Friday, September 18-19.  Consequently, the Natural Gas Weekly Update for September 18 was not published.  The table of daily natural gas prices that would have appeared in that issue is included below.

 

Prices for Sept 11 – Sept 17.

Spot Prices ($ per MMBtu)	Thur.	Fri.	Mon.	Tues.	Wed.
	11-Sep	12-Sep	15-Sep	16-Sep	17-Sep
Henry Hub	4.85	4.65	4.65	4.67	4.61
New York	5.11	4.87	4.98	5.06	4.98
Chicago	4.92	4.70	4.69	4.72	4.69
Cal. Comp. Avg,*	4.81	4.60	4.65	4.60	4.56
Futures ($/MMBtu)
Oct delivery	4.738	4.766	4.685	4.661	4.642
Nov delivery	4.988	5.035	4.947	4.905	4.852
*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).

 

Storage:

Working gas in storage was 2,863 Bcf as of Friday, October 3, 2003, according to the EIA Weekly Natural Gas Storage Report. (See Storage Figure)  This is roughly 1 percent below the 5-year average for the report week and 7 percent below the level last year for the same week.  The implied net injection during the report week was 75 Bcf, which is about 32 percent more than the 5-year average of 57 Bcf for the week, continuing the pattern of larger-than-average net injections during this refill season.  However, cooler-than-normal temperatures across much of the Lower 48 States, helped end the 3-week streak of triple-digit injections (See Temperature Map.) (See Deviation Map.)  The year-on-year storage deficit has declined for 23 of the past 24 weeks, falling 33 Bcf to 217 Bcf.  To reach the 3 trillion cubic foot mark by November 2003, net injections would have to average roughly 34 Bcf per week for the remainder of the refill season.

 

All Volumes in Bcf	Current Stocks 10/03/03	One-Week Prior Stocks 9/26/03	Implied Net Change from Last Week	Estimated Prior 5-Year (1998-2002) Average	Percent Difference from 5 Year Average
East Region	1,710	1,667	43	1,753	-2.5%
West Region	374	366	8	358	4.5%
Producing Region	779	755	24	788	-1.1%
Total Lower 48	2,863	2,788	75	2,900	-1.3%
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:

Gas Shut-ins to Date Less than Expected in Alberta: About 95 million cubic feet per day (MMcf/d) of gas production in Alberta is currently shut in following the Canadian province’s Energy and Utilities Board’s (EUB) recent decision to cease operations in areas of the Athabasca Oil Sands. Gas production has been interrupted owing to concerns that production would jeopardize oil sands reservoir pressures in the Wabiskaw-McMurry area in northeastern Alberta. The amount of bitumen from the oil sands in the area has an energy value nearly 600 times that of the gas that could be produced from the area, EUB says. Approximately 338 wells have been shut in to date, or about 41 percent of the production from the area, which covers 5.5 million acres. Original projections had been that nearly 250 MMcf/d would be shut in to date, but the EUB has exempted at least 600 gas wells from its decision. The EUB granted temporary exemptions to operators of wells that have shown evidence that natural gas extraction will not affect the potential extraction of bitumen. Those temporary waivers will be re-examined throughout the fall.

 

Natural Gas Summary from the Short-Term Energy Outlook:

The Energy Information Administration (EIA) projects that natural gas wellhead prices will average $4.17 per MMBtu during the last 3 months of 2003 and increase to $4.32 in January 2004 (Short-Term Energy Outlook, October 2003). Prices have fallen somewhat from the unusually high levels that prevailed in the first half of the year and most of July, as mild summer weather and reduced industrial demand allowed record storage refill rates. As of October 3, 2003, working gas levels were only 1 percent below the 5-year average and, barring any disruptions, are on target to reach 3 Tcf by the end of October. With the improved storage situation, wellhead prices during the upcoming heating season (November through March), assuming normal weather, are expected to be about 13 percent less than last winter ($4.17 vs. $4.68 per MMBtu). But prices in the residential sector are projected to be about 9 percent higher than last winter, as the recent decline in wellhead prices is too recent and insufficient to offset the impact of the substantial spring-summer increase in wellhead prices on residential prices. Overall in 2003, wellhead prices are expected to average $4.75 per MMBtu, which is nearly $2 more than the 2002 annual average and the largest year-to-year increase on record. For 2004, wellhead prices are projected to drop by nearly $0.90 per MMBtu, or about 20 percent, to $3.86 per MMBtu as the overall supply situation improves.

Natural gas production is expected to increase by about 2.1 percent in 2003. Following the downturn in natural gas-directed drilling activity in 2002, higher natural gas prices and sharply higher oil and natural gas field revenues continue to drive the resurgence in drilling this year. The number of rigs drilling for natural gas has totaled more than 900 since the week ending June 13 and averaged 932 in August and 936 in September. In 2004, production is expected to remain at modestly improved levels. The prospects for significant reductions in natural gas wellhead prices in 2004 depend on the productivity of the expected upsurge in drilling.

Natural gas demand is expected to fall by about 1.1 percent in 2003 because of reduced demand in the industrial sector and electric power sectors as a result of high prices and the sharply lower weather-related demand following the first quarter of 2003. This winter, assuming normal weather, natural gas demand is expected to be about 2.4 percent less than last winter’s level as gas-weighted heating degree-days for the season (Q4 2003 and Q1 2004) are projected to be about 3.7 percent less than year-ago levels. Overall in 2004, natural gas demand is expected to increase because of accelerated economic growth and generally lower prices.

 

 

Short-Term Natural Gas Market Outlook, October 2003
	History			Projections
	Jul-03	Aug-03	Sep-03	Oct-03	Nov-03	Dec-03
PRICES ($/MMBtu)
Average Wellhead Price	4.78	4.60	4.27	4.12	4.15	4.23
Residential Price	12.27	12.23	11.62	10.22	9.27	8.81
Electric Utilities Price	4.88	4.94	4.57	4.65	4.82	5.02
SUPPLY (Trillion Cubic Feet)
Total Dry Gas Production	1.645	1.646	1.588	1.641	1.592	1.623
Net Imports	0.306	0.328	0.325	0.332	0.305	0.338
Imports	0.362	0.384	0.380	0.389	0.363	0.397
Exports	0.056	0.056	0.055	0.057	0.058	0.059
Suppl. Gaseous Fuels	0.006	0.006	0.006	0.006	0.007	0.008
Total New Supply	1.957	1.980	1.919	1.980	1.904	1.969
Working Gas in Storage
Opening	1.710	2.095	2.410	2.837	3.086	2.965
Closing	2.095	2.410	2.837	3.086	2.965	2.487
Net Storage Withdrawal	-0.386	-0.315	-0.427	-0.249	0.121	0.477
Total Supply	1.571	1.665	1.493	1.731	2.026	2.446
Balancing Item	0.041	-0.016	0.036	-0.165	-0.210	-0.172
Total Primary Supply	1.612	1.649	1.529	1.565	1.816	2.274
DEMAND (Trillion Cubic Feet)
Lease & Plant Fuel	0.088	0.086	0.078	0.075	0.079	0.080
Pipeline Use	0.051	0.053	0.049	0.052	0.056	0.067
Delivered to Consumers	1.473	1.509	1.402	1.438	1.681	2.127
Residential	0.121	0.112	0.128	0.212	0.436	0.730
Commercial	0.130	0.127	0.128	0.179	0.277	0.400
Industrial	0.564	0.584	0.566	0.612	0.612	0.647
Electric Power	0.658	0.686	0.579	0.435	0.356	0.350
Total Demand	1.612	1.649	1.529	1.565	1.816	2.274

 

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