Natural Gas

Overview:

Natural gas spot and futures prices tumbled this week as storage levels rose above the 5-year average and forecasts called for continued moderate temperatures into the official start of the winter heating season (November 1). For the week (Wednesday-Wednesday, October 22-29), the price at the Henry Hub decreased 38 cents or about 8 percent to $4.50 per MMBtu. Prices in market areas along the Gulf Coast and Texas similarly fell between 30-45 cents per MMBtu, while Northeast prices slid more than 50 cents per MMBtu. The price of the NYMEX futures contract for November delivery expired at $4.459 on October 29, after declining roughly 47 cents per MMBtu or slightly more than 9 percent since last Wednesday. Natural gas in storage increased to 3,121 Bcf as of Friday, October 24, which is about 2.7 percent above the 5-year average. The spot price for West Texas Intermediate (WTI) crude oil decreased $1.08 per barrel or 3.6 percent since last Wednesday to trade yesterday (October 29) at $28.92 per barrel or $4.99 per MMBtu.

Moderate temperatures throughout much of the country even as the winter heating season drew closer weighed down spot prices this week, as most trading locations registered declines of between 30 and 60 cents per MMBtu. The Henry Hub price gained about 6 cents in trading yesterday to $4.50 per MMBtu. However, the mild increase only limited the Wednesday-to-Wednesday decline to 38 cents per MMBtu. Price declines on the week were highest in the Northeast, where little weather-sensitive load has yet to begin flowing. The price at delivery points in the Northeast off Tennessee Gas Pipeline (TGP) on the week plunged 72 cents per MMBtu from a week ago to $5.03 in trading yesterday. Although the price decline off TGP was highest in the region, trading off other pipelines in the Northeast followed closely with declines of 50 to 60 cents per MMBtu. Light demand in the region also was evident in announcements from Texas Eastern Transmission and Algonquin Gas Transmission warning shippers of extra linepack owing to moderate weather. Most Rockies price declines ranged between 20 and 42 cents per MMBtu, bringing the regional average to $4.12 on Wednesday. Prices at certain market locations, however, remain below the $4 mark. The Questar trading point in Utah, for example, traded at $3.86 yesterday (October 29), a decline of 36 cents on the week. Prices in Northern California, which is experiencing an early cold front, were nearly flat on the week. At the PG&E citygate, the price for next-day delivery dropped a modest 3 cents per MMBtu on the week.

 

Spot Prices ($ per MMBtu)	Thur.	Fri.	Mon.	Tues.	Wed.
	23-Oct	24-Oct	27-Oct	28-Oct	29-Oct
Henry Hub	4.91	4.78	4.56	4.44	4.50
New York	5.54	5.16	5.05	4.96	4.97
Chicago	4.98	4.99	4.76	4.70	4.70
Cal. Comp. Avg,*	4.43	4.26	4.32	4.32	4.47
Futures ($/MMBtu)
Nov delivery	4.913	4.786	4.512	4.486	4.459
Dec delivery	5.197	5.053	4.806	4.836	4.858
*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 November delivery at the Henry Hub declined for five consecutive trading sessions on the way to its monthly expiration yesterday. The November contract's final settlement of $4.459 per MMBtu represented a decline in value of 47 cents on the week and a little more than $1.19, or 21 percent, from its high mark of $5.652 as the near-month contract on October 10. Owing at least in part to perceptions of improving market fundamentals and forecasts of moderate temperatures into November, price declines were greatest on Friday and Monday, during which the near-month contract lost a combined 40 cents or about 9 percent of its value. Despite the price decrease, the November contract still expired about 3 cents higher than the October 2003 settlement of $4.43 and 33 cents, or 8 percent, higher than the November 2002 contract settlement of $4.126. The basis differential between the Henry Hub spot price and price of the futures contract for delivery in January 2004 this week ranged from about 55 to 65 cents, as the January contract settled each of the last three sessions between $5.05 and $5.11 and the Henry Hub spot price averaged about $4.50 during the same time period. As a result, the basis continues to provide suppliers an incentive to inject gas into storage. However, the differential is down considerably from the $1 or more level in mid-October. The 12-month strip, or the average price for contracts over the next year, closed yesterday at just under $4.788, a loss of about 15 cents on the week.

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.

 

Storage:

Working gas in storage was 3,121 Bcf as of Friday, Oct 24, 2003, according to the Energy Information Administration (EIA) Weekly Natural Gas Storage Report. This is 2.7 percent above the 5-year average for the report week, yet about 1.6 percent below last year's inventory level of 3,172 Bcf for the same week (See Storage Figure). The implied net injection into working gas inventories during the week was 55 Bcf, the lowest net injection since August 22. However, in comparison to report weeks from prior years, injection activity continued to be relatively robust. Net injections were 53 percent higher than the 5-year average of 36 Bcf and five times last year's 11 Bcf injection. The lack of weather-related demand in part likely allowed for the injection activity during the week. While cooler-than-normal temperatures prevailed in Middle Atlantic and New England regions, contributing to mild heating demand for natural gas, temperatures across the rest of the country were far above normal, as measured by heating-degree days (HDDs) published by the National Weather Service for the week ended October 25. (See Temperature Map) (See Deviation Map). For the country as a whole, HDDs numbered 66, or about 20 percent below normal and 37 percent less than the level of last year's report week.

 

EIA Implements Revised Methodology for the Weekly Natural Gas Storage Report: As announced on October 23, 2003, the Energy Information Administration implemented revisions to the estimation system used to produce the Weekly Natural Gas Storage Report (WNGSR), which became effective today, October 30, with the release of working gas estimates as of October 24. The new system expands the sample size, updates the reference period for the estimation parameters to the end of June 2003, and changes the methodology used to estimate the total volume of working gas in storage in each of three regions. The weekly storage estimates are based on a survey sample, which does not include all companies that operate underground storage facilities. A complete description of the revised methodology was released on October 29, 2003, and is available in the report, Methodology for EIA Weekly Underground Natural Gas Storage Estimates. EIA also has released storage estimates based on the new methodology for all weeks from July 4, 2003, to October 17, 2003.

 

All Volumes in Bcf	Current Stocks 10/24/03	One-Week Prior Stocks 10/17/03	Implied Net Change from Last Week	Estimated Prior 5-Year (1998-2002) Average	Percent Difference from 5 Year Average
East Region	1,847	1,817 R	30	1,839	0.4%
West Region	396	390 R	6	371	6.7%
Producing Region	878	859 R	19	830	5.8%
Total Lower 48	3,121	3,066 R	55	3,039	2.7%
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. R=Revised

 

Other Market Trends:

Federal-State Agreement Seeks Better Natural Gas Data: The Energy Information Administration (EIA) and Interstate Oil and Gas Compact Commission (IOGCC) have become partners to improve natural gas supply data collection. On Wednesday, October 29, EIA announced the signing of a memorandum of understanding with IOGCC in an attempt to increase the timeliness and accuracy of both State and national-level monthly gas production data. IOGCC represents the 37 States producing virtually all domestic natural gas. The memorandum of understanding recognizes that the IOGCC member States, which regulate and tax the production of oil and natural gas within their borders, possess a great deal of information about those industries, especially the production and consumption of natural gas. The agreement also contemplates facilitating public access to production data on State and EIA web sites. A joint EIA-IOGCC team will establish mechanisms to promote these objectives, preparing periodic progress reports with major findings and accomplishments to be made available to the public. The agreement was signed on October 20, 2003, by Governors John Hoeven of North Dakota and Frank Murkowski of Alaska, IOGCC Vice Chairman Lynn Helms, and EIA Administrator Guy Caruso. It is available on the EIA Web site at: Memorandum of Understanding.

Summary:

Since Wednesday, October 22, natural gas spot prices at most market locations in the Lower 48 States have dropped 30 to 60 cents per MMBtu. Prices at the NYMEX also declined as the November contract dropped 47 cents to $4.459 per MMBtu in its final week of trading. Natural gas in storage increased to 3,121Bcf as of Friday, October 24, which is about 2.7 percent above the 5-year average.

 

 

Natural Gas Summary from the Short-Term Energy Outlook