Overview:  Thursday, December 11, 2003 (next release 2:00 p.m. on December 18)

Spot and futures prices surged higher for the week (Wednesday to Wednesday, December 3-10), as the East Coast was struck by two pre-winter storms that brought record snowfalls to many areas of the Middle Atlantic and New England over the weekend, along with temperatures as much as 10 degrees below normal.  At the Henry Hub, the spot price gained $1.20 per MMBtu, or nearly 22 percent, on the week, ending trading yesterday (Wednesday, December 10) at $6.65.  On the NYMEX, the futures contract for January delivery increased nearly $1 since the previous Wednesday (December 3), as it rose $0.955 per MMBtu, or almost 17 percent, to settle at $6.711.  The Energy Information Administration reported that storage inventories were 2,984 Bcf as of Friday, December 5, which is 2.7 percent greater than the previous 5-year (1998-2002) average.  The spot price for West Texas Intermediate crude oil climbed to $31.92 per barrel, or $5.50 per MMBtu—an increase of $1.31 per barrel ($0.12 per MMBtu) since last Wednesday.

Prices:

Spot prices increased in 4 of the 5 trading days of the week, recording the largest week-to-week gains since late February 2003.  Increases exceeded $1 per MMBtu at nearly all trading locations, with the largest increases, up to $1.57 per MMBtu, in the Midcontinent.  Temperatures were colder than normal most days in many areas of the nation including the entire East Coast and much of the South as far west as Texas, contributing to strong space heating demand.  A mid- to late-week snowstorm in parts of the Midwest, followed by the near-blizzard conditions over the weekend in the Middle Atlantic and New England, further bolstered prices.  Additionally, the relatively large price movements in futures market trading also influenced spot trading.  One-day surges of over 58 cents and nearly 77 cents per MMBtu in the settlement price of the near-month contract (for January delivery) on Thursday (December 4) and Monday (December 8) led to large differentials with respect to the Henry Hub spot price.  The large spreads provided strong incentive for industry participants with access to storage capacity to make spot gas purchases for injection into storage or at least to avoid withdrawing storage now, given higher expected prices in the future.  For the week, the lowest price increases tended to be in the Rocky Mountains region, where temperatures were generally well above normal.  In the Midwest, the Chicago citygate price increased by $1.36 per MMBtu, or 25 percent, to $6.79.  In the Northeast, the price for delivery to New York citygates increased by $1.08, or about 18 percent, to $7.23 per MMBtu.  

 

Spot Prices ($ per MMBtu)	Thur.	Fri.	Mon.	Tues.	Wed.
	4-Dec	5-Dec	8-Dec	9-Dec	10-Dec
Henry Hub	5.71	6.29	6.06	6.52	6.65
New York	6.63	7.28	6.84	7.10	7.23
Chicago	5.62	6.12	5.93	6.39	6.79
Cal. Comp. Avg,*	5.01	5.51	5.44	5.81	6.03
Futures ($/MMBtu)
Jan delivery	6.337	6.135	6.902	6.722	6.711
Feb delivery	6.303	6.132	6.881	6.723	6.731
*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).

 

On the NYMEX, the surging prices on Thursday (December 4) and Monday (December 8) exceeded the moderate declines of the other 3 trading days, leaving the January contract at $6.711 per MMBtu, up $0.955 from the previous Wednesday (December 3).  The higher prices for the week likely reflect the influence of a number of factors.  The impetus for Thursday’s price jump may be attributed to the reported net withdrawal of 59 Bcf for the Thanksgiving week.  Its impact on the market may have been accentuated by its comparison with the 1 Bcf withdrawal reported the week before.  Monday’s spike was probably influenced by two major factors, including several private weather forecasting services agreeing, in contrast to the National Weather Service on that day, that the last part of the month will be colder than normal in many high gas-consuming areas of the country.  A second factor is that the NYMEX increased its margin requirements for the first 3 months’ contracts by 40 percent effective at the close of business on Monday, providing an incentive for some traders, especially non-commercial traders, currently holding short positions to close them out rather than face expensive margin calls.  The January contract’s settlement price of $6.711 yesterday (Wednesday, December 10) has been exceeded only by near-month contract trading in December 2000-January 2001 (January and February 2001 contracts) and February-March 2003 (March and April 2003 contracts).

 

Estimated Average Wellhead Prices
	Jun-03	Jul-03	Aug-03	Sep-03	Oct-03	Nov-03
Price ($ per Mcf)	5.35	4.91	4.72	4.58	4.43	4.34
Price ($ per MMBtu)	5.21	4.79	4.60	4.46	4.32	4.23
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:

Natural gas stocks stood at 2,984 Bcf as of Friday, December 5, according to the December 11 release of the Energy Information Administration’s Weekly Natural Gas Storage Report.  The implied net withdrawal of 111 Bcf is about 52 percent greater than the previous 5-year (1998-2002) average for the week (See Storage Figure) .  Implied net withdrawals in each of the three storage regions significantly exceeded their respective 5-year averages as well, with the Producing region’s withdrawal, at 31 Bcf, being double its 5-year average of 15 Bcf.  Nevertheless, total inventories remain above the 5-year average by 2.7 percent.   The colder-than-normal temperatures that prevailed during the week ended December 5 for most of the nation east of the Mississippi River (See Temperature Map) (See Deviation Map) certainly contributed to space-heating demand and encouraged withdrawals from storage.  Four of the five Census Divisions in the Northeast and South Census Regions recorded gas-customer weighted heating degree days (HDD) that exceeded normal for the week by 15 percent or more.  The colder temperatures were especially pronounced in the populous and high-gas consuming Census Divisions along the East Coast, where the Middle Atlantic, New England, and South Atlantic Divisions were 21.4, 24.3, and  26.5 percent colder than normal, respectively, as measured by HDDs. 

 

All Volumes in Bcf	Current Stocks 12/5/03	One-Week Prior Stocks 11/28/03	Implied Net Change from Last Week	Estimated Prior 5-Year (1998-2002) Average	Percent Difference from 5 Year Average
East Region	1,756	1,824	-68	1,747	0.5%
West Region	371	383	-12	361	2.8%
Producing Region	857	888	-31	797	7.5%
Total Lower 48	2,984	3,095	-111	2,905	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.

 

Other Market/Industry Trends:

FERC Issues Rulemaking in Response to Changing Structure of the Energy Industry.  In a rule issued on Tuesday, November 25, the Federal Energy Regulatory Commission (FERC) significantly broadened the scope of energy affiliates that must conform to the standards of conduct governing the relationships between transmission providers, which jointly refers to natural gas pipelines and electric transmission providers, and their affiliates.  According to FERC, “the new standards of conduct will eliminate the loophole in the current regulations that do not cover a transmission provider’s relationship with energy affiliates that are not marketers or merchant affiliates.”  Since the adoption of FERC Order 636 requiring interstate pipelines to unbundle gas sales from transportation, the market has expanded to include both physical and financial transactions by marketing and non-marketing gas pipeline affiliates.  As a result of growth and consolidations, many interstate natural gas pipelines have a wide array of affiliates in all sectors of the energy market.  Along with the changing nature of the energy affiliates, the changing nature of the transmission providers themselves and the growing convergence of the gas and electric industries prompted the FERC rulemaking.  In FERC’s view, this rulemaking will ensure that transmission providers cannot extend their market power over transmission into wholesale energy markets by giving their energy affiliates preferential treatment.

 

Natural Gas Summary from the Short-Term Energy Outlook:

The Energy Information Administration (EIA) projects that natural gas wellhead prices will average $4.41 per MMBtu in December 2003, although spot prices are expected to average $5.38 (Short-Term Energy Outlook, December 2003). The average wellhead price is expected to increase moderately to $4.56 during the first three months of 2004.  Natural gas prices were lower in November than previously expected but forward price expectations remain sensitive to weather conditions.  Prices increased rapidly in futures trading in early December as some cold weather moved into the Eastern United States and reported withdrawals from gas storage were slightly larger than expected.  Spot prices above $5 per MMBtu remain likely over the next few months if normal (or colder) weather prevails, especially with oil prices remaining at relatively high levels.  Natural gas storage levels are still above average and hold the potential to push prices back down if warm temperatures and weak heating demand materialize later in the winter, just as upward spikes remain a strong possibility if the weather turns cold.

Natural gas demand is expected to show a decline of 2.3 percent in 2003 largely owing to high prices discouraging demand in the industrial and electric power sectors.  However, expected growth in the economy, along with somewhat lower projected annual average prices, are expected to increase demand by nearly 1 percent in 2004.  Natural gas production is expected to increase by about 2.4 percent this year, but to fall back somewhat in 2004 as drilling intensity declines.  In 2004, the projected supply gap between demand and production is offset by the expectation that storage injection requirements will be less than those of 2003, when stocks after the winter of 2002-2003 were at record lows.

 

Short-Term Natural Gas Market Outlook, December 2003
	History			Projections
	Sep-03	Oct-03	Nov-03	Dec-03	Jan-04	Feb-04
PRICES ($/MMBtu)
Average Wellhead Price	4.46	4.31	4.11	4.41	4.80	4.65
Residential Price	12.02	9.86	9.11	8.69	8.84	9.07
Electric Utilities Price	4.65	4.63	4.74	5.61	5.82	5.43
SUPPLY (Trillion Cubic Feet)
Total Dry Gas Production	1.594	1.669	1.631	1.660	1.666	1.545
Net Imports	0.289	0.294	0.307	0.336	0.317	0.286
Imports	0.343	0.350	0.365	0.394	0.375	0.342
Exports	0.055	0.056	0.057	0.058	0.057	0.056
Suppl. Gaseous Fuels	0.006	0.006	0.007	0.007	0.008	0.006
Total New Supply	1.889	1.969	1.945	2.003	1.991	1.837
Working Gas in Storage
Opening	2.444	2.868	3.155	3.081	2.569	1.825
Closing	2.868	3.155	3.081	2.569	1.825	1.348
Net Storage Withdrawal	-0.424	-0.287	0.074	0.512	0.744	0.477
Total Supply	1.465	1.682	2.019	2.515	2.735	2.314
Balancing Item	0.049	-0.103	-0.214	-0.253	-0.152	0.064
Total Primary Supply	1.514	1.580	1.805	2.262	2.583	2.378
DEMAND (Trillion Cubic Feet)
Lease & Plant Fuel	0.087	0.092	0.091	0.093	0.091	0.085
Pipeline Use	0.043	0.047	0.055	0.071	0.080	0.072
Delivered to Consumers	1.383	1.441	1.659	2.098	2.411	2.222
Residential	0.132	0.230	0.422	0.716	0.929	0.818
Commercial	0.129	0.180	0.268	0.402	0.490	0.457
Industrial	0.558	0.600	0.604	0.623	0.645	0.628
Electric Power	0.564	0.431	0.364	0.357	0.347	0.319
Total Demand	1.514	1.580	1.805	2.262	2.583	2.378

 

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