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Natural Gas

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Natural Gas Weekly Update Archive

for week ending January 7, 2004  |  Release date:  January 8, 2004   |  Previous weeks

Overview:Thursday, January 8 2004 (next release 2:00 p.m. on January 15)

A massive cold front that began flowing into the Plains States over this past weekend and spread south and eastward sent spot prices sharply upward for the first two days of this week. Coupled with the generally smaller net increases seen during the holiday-shortened New Year's week (Monday, December 29-Friday, January 2), spot prices have gained more than $1 per MMBtu since Wednesday, December 24, at nearly every market location. At the Henry Hub, the spot price rose 27 cents per MMBtu during New Year's week, and jumped 86 cents per MMBtu since Wednesday, December 31, for a net increase of $1.13 per MMBtu since Christmas, ending trading yesterday (Wednesday, January 7) at $6.63. On the NYMEX, the contract for January delivery expired on Monday, December 29, with a final settlement price of $6.150 per MMBtu. The contract for February delivery opened as the near-month contract the following day with a settlement price of $6.600 per MMBtu, and has gained $0.278 per MMBtu since then with settlement yesterday at $6.878. EIA reported that natural gas inventories were 2,567 Bcf as of Friday, January 2, which is 8.3 percent greater than the previous 5-year (1999-2003) average for the week. Since Wednesday, December 24, West Texas Intermediate (WTI) crude oil on the spot market has traded between $32.51 and $33.71 per barrel. WTI ended trading yesterday at $33.57 per barrel, or $5.79 per MMBtu, up $1.06 per barrel ($0.18 per MMBtu) from the previous Wednesday (December 29).


Prices:

Spot prices reacted to the arrival of the first truly winter-like temperatures west of the Rocky Mountains thus far this heating season, as daily low temperatures dipped below zero in some Midwest cities by Tuesday (January 6), and reached the teens and single digits in many cities in the New England, Middle Atlantic, and South Atlantic Census Divisions. Meanwhile, several major cities in the Pacific Contiguous Census Division extended their run of below-normal average temperatures to 10 days, while average lows at some Rockies locations fell 13 degrees below normal on Monday and Tuesday. As a result, prices increased at every market location on Monday and Tuesday, with most increases ranging from around $0.40 to well over $1 both days. Prices topped $7 per MMBtu at most locations in the Midwest and the Gulf, and approached $9 in the Northeast. Spot prices retreated somewhat on Wednesday as weather forecasts called for slight moderation in the cold towards the end of the week. Coupled with the smaller net increases that occurred during the holiday-shortened last week of 2003, regional average prices have recorded cumulative increases since December 24 of $1.03 per MMBtu in California to $2.27 per MMBtu in the Northeast. In the Midwest, the Chicago citygate price reached $7.02 before falling back yesterday to $6.56—an increase of $1.14 from December 24. Several Northeast locations had cumulative increases of $2.93 to $3.28 per MMBtu.  At Iroquois Zone 2, the spot price increased from $5.81 to $9.09 per MMBtu, a jump of 56 percent.  The highest-priced spot gas in yesterday's trading was for Algonquin citygates, at $9.13 per MMBtu.

 

Spot Prices ($ per MMBtu)

Mon

Tue.

Wed

Mon.

Tue.

Wed.

29-Dec

30-Dec

2-Jan

5-Jan

6-Jan

7-Jan

Henry Hub

5.46

5.96

5.77

6.26

7.04

6.63

New York

5.83

6.35

6.23

7.77

8.57

8.16

Chicago

5.54

6.02

5.86

6.64

7.02

6.56

Cal. Comp. Avg,*

5.40

5.73

5.51

6.14

6.58

5.90

Futures ($/MMBtu)

 

 

 

 

 

 

Jan delivery

6.150

expired

expired

expired

expired

expired

Feb delivery

6.243

6.600

6.189

6.827

7.082

6.878

Mar delivery

5.993

6.300

5.996

6.630

6.905

6.693

*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).

Note: Spot and futures markets were closed on Thursday and Friday, January 1-2, 2004.

On the NYMEX, the January contract ended trading on Monday, December 29 at $6.150 with a drop of $0.229 per MMBtu. Nonetheless, as the near-month contract, January had gained nearly 25 percent, with an increase of $1.225 per MMBtu over its settlement of $4.925 on November 26, its first day as the near-month contract. Since beginning as the new near-month contract on Tuesday, December 30, the February contract's settlement price has mirrored the changes in the spot market, albeit at less extreme levels. The February contract topped $7 per MMBtu for the first time since December 19 on Tuesday (January 6), settling at $7.082 per MMBtu. In yesterday's trading, it dropped back just over 20 cents to settle at $6.878 per MMBtu.

Estimated Average Wellhead Prices

 

Jul-03

Aug-03

Sep-03

Oct-03

Nov-03

Dec-03

Price ($ per Mcf)

4.91

4.72

4.58

4.43

4.34

5.08

Price ($ per MMBtu)

4.79

4.60

4.46

4.32

4.23

4.95

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 2,567 Bcf as of Friday, January 2, according to EIA's Weekly Natural Gas Storage Report. The implied net withdrawal of 52 Bcf was 61 percent less than the previous 5-year (1999-2003) average net withdrawal of 144 Bcf. Stock levels stood at 8.3 percent greater than the 5-year average as of January 2. (See Storage Figure) Only the West region, with an implied net withdrawal of 19 Bcf, exceeded its average net withdrawal for the week, yet stocks there remained 3.1 percent greater than the 5-year average. The Producing region recorded a net increase of 1 Bcf, only the second time in the 11-year span of weekly data that this has occurred in the first week of the year in that region. Unusually warm weather in much of the eastern United States during the week covered by this storage report undoubtedly contributed to lower than average storage withdrawals. (See Temperature Map.) (See Deviations  Map.) According to the latest data from the National Weather Service, gas-customer weighted heating degree days (HDD) were considerably less than normal for the seven Census Divisions east of the Rocky Mountains. HDDs ranged from 27.1 percent less than normal in the New England Census Division to 45.0 percent less in the West South Central.

 

All Volumes in Bcf

Current Stocks 1/2/04

One-Week Prior Stocks 12/26/03

Implied Net Change from Last Week

Estimated Prior 5-Year (1998-2002) Average

Percent Difference from 5 Year Average

East Region

1,495

1,529

-34

1,404

6.5%

West Region

319

338

-19

309

3.2%

Producing Region

753

752

1

658

14.4%

Total Lower 48

2,567

2,619

-52

2,371

8.3%

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:

Natural Gas Rig Counts: The number of rigs drilling for natural gas climbed by 7 to 966 for the week ending December 31, according to Baker-Hughes Incorporated. This is the highest rig count since the week ended September 14, 2001. The number of natural gas rigs is nearly 34 percent greater than last year at this time, and over 40 percent above the 5-year average for the report week. The rig count climbed nearly 37 percent in 2003, contrasting with the previous year's decline of about 5 percent. During 2003, the total number of rigs drilling for oil or gas increased by 264. However, the number of offshore rigs at the end of the year was 104, down 7 from the end of 2002. This trend continued a pattern of decline that has persisted since January 2001 when offshore rigs last peaked at 181. Meanwhile, the number of land-based rigs more than offset the offshore drilling declines in 2003, increasing by 271 rigs principally in Texas, Oklahoma, Wyoming, New Mexico, and Colorado. This reflects the growing prominence of the Rocky Mountains region in natural gas production, highlighting a shift from conventional gas fields to unconventional gas fields, i.e., tight sands, shales, and coalbeds. The share of rigs drilling for natural gas was 86 percent for the report week, remaining consistently above 80 percent since May 2001. This is the longest period of time in the more than 16 years that Baker-Hughes has separately reported gas and oil drilling rigs that rigs drilling for natural gas have comprised more than 80 percent of total rigs drilling. The emphasis on gas prospects reflects a relative advantage in the economics of natural gas prospects compared with domestic crude oil prospects.

 

Natural Gas Summary from the Short-Term Energy Outlook:

The Energy Information Administration (EIA) projects that natural gas wellhead prices will average $5.57 per MMBtu in January 2004 and $5.40 in February, and then decrease to $4.77 in March as the heating season winds down (Short-Term Energy Outlook, January 2004). Spot prices were quite variable in December, with prices at the Henry Hub starting the month at around $5.00 per MMBtu, spiking to roughly $7.00 in the middle of the month, then falling to $5.50 toward the end of the month as warmer-than-normal weather eased demand. Spot prices will likely remain well above $5.00 over the next few months if normal or colder weather prevails, especially with oil prices remaining at relatively high levels. (Oil prices this winter are expected to average $31.35 per barrel (19 cents higher than last winter's average), or $5.41 per MMBtu.) Natural gas storage levels were 8 percent above average as of January 2, which could place downward pressure on prices if warm temperatures and weak heating demand occur later this winter, just as rising prices are possible if the weather becomes colder. Overall in 2004, natural gas wellhead prices are expected to average $4.73 per MMBtu, while spot prices will average nearly $5.00. In 2005, natural gas spot prices are projected to fall to an average of $4.83 per MMBtu under the assumption that domestic and imported supply can continue to grow by about 1-1.5 percent per year.

Early estimates indicate that natural gas production increased by about 2.0 percent in 2003. Natural gas production is expected to continue to expand modestly through 2005, as natural gas well completions, which totaled an estimated 20,000 in 2003, continue to grow to between 21,000 and 22,000 wells per year over the next 2 years. Natural gas demand is expected to have declined by 2.6 percent in 2003 largely because high prices discouraged demand in the industrial and electric power. However, expected growth in the economy, along with somewhat lower projected annual average prices, are expected to increase demand by about 1.2 percent in 2004. Demand in 2005 is expected to increase by 1.8 percent as the economy continues to expand and prices ease slightly.


 

Short-Term Natural Gas Market Outlook, January 2004

 

History

Projections

 

Oct-03

Nov-03

Dec-03

Jan-04

Feb-04

Mar-04

PRICES ($/MMBtu)

 

 

 

 

 

 

Average Wellhead Price

4.31

4.23

4.97

5.57

5.40

4.77

Residential Price

9.89

9.05

8.89

9.19

9.57

9.61

Electric Utilities Price

4.67

4.54

5.42

6.79

6.13

5.26

 

 

 

 

 

 

 

SUPPLY (Trillion Cubic Feet)

 

 

 

 

 

 

Total Dry Gas Production

1.627

1.607

1.647

1.668

1.555

1.671

Net Imports

0.283

0.298

0.326

0.300

0.271

0.276

Imports

0.343

0.359

0.387

0.359

0.328

0.339

Exports

0.060

0.061

0.061

0.059

0.057

0.063

Suppl. Gaseous Fuels

0.006

0.007

0.007

0.008

0.006

0.007

Total New Supply

1.916

1.911

1.981

1.976

1.833

1.954

 

 

 

 

 

 

 

  Working Gas in Storage

 

 

 

 

 

 

Opening

2.843

3.155

3.063

2.505

1.892

1.371

Closing

3.155

3.063

2.505

1.892

1.371

1.147

Net Storage Withdrawal

-0.312

0.092

0.558

0.613

0.521

0.223

 

 

 

 

 

 

 

Total Supply

1.604

2.003

2.539

2.589

2.354

2.177

 

 

 

 

 

 

 

Balancing Item

-0.045

-0.208

-0.337

-0.054

0.016

-0.012

 

 

 

 

 

 

 

Total Primary Supply

1.559

1.795

2.202

2.535

2.370

2.165

 

 

 

 

 

 

 

DEMAND (Trillion Cubic Feet)

 

 

 

 

 

 

Lease & Plant Fuel

0.091

0.090

0.093

0.092

0.085

0.092

Pipeline Use

0.046

0.055

0.070

0.080

0.073

0.063

Delivered to Consumers

1.422

1.650

2.039

2.363

2.212

2.010

Residential

0.229

0.420

0.680

0.908

0.818

0.658

Commercial

0.181

0.267

0.386

0.479

0.455

0.390

Industrial

0.585

0.592

0.613

0.633

0.617

0.605

Electric Power

0.428

0.371

0.360

0.343

0.322

0.358

Total Demand

1.559

1.795

2.202

2.535

2.370

2.165

Source: Energy Information Administration, Short-Term Energy Outlook, January 2004.