Natural Gas

Overview: Thursday, January 15, 2004 (next release 2:00 p.m. on January 22)

Since Wednesday, January 7, natural gas spot prices have decreased at most market locations in the Lower 48 States outside of the Northeast region. For the week (Wednesday-Wednesday), prices at the Henry Hub decreased 89 cents or about 13 percent to $5.74 per MMBtu. Despite widespread declines elsewhere, prices in the Northeast region surged to more than seven times last week's levels at some market locations as extreme wintry conditions moved into the region. Yesterday (January 14), the price of the NYMEX futures contract for February delivery at the Henry Hub settled at $6.387 per MMBtu, decreasing roughly 49 cents or 7 percent since last Wednesday. Natural gas in storage was 2,414 Bcf as of January 9, which is 8.3 percent above the 5-year average. The spot price for West Texas Intermediate (WTI) crude oil gained $1.05 per barrel or about 3 percent since last Wednesday, climbing to $34.62 per barrel or $5.969 per MMBtu.

Prices:

A respite from below-normal temperatures led to price declines in most market locations outside the Northeast region, while an arctic blast entering the Northeast contributed to soaring prices at nearly all market locations in the region. Price declines since last Wednesday, January 7, ranged between 42 and 90 cents at most market locations. The largest price decreases occurred in Texas, where prices fell $0.90 to $1.06 per MMBtu since last Wednesday. Nevertheless, despite these declines, prices at most markets west of the Middle Atlantic region remained between 5 and 15 percent above last year's levels. Prices in the Northeast region surged between roughly $22 and $55 at most market locations in the region since Wednesday, January 7, in a week of highly variable trading. Following a 3-day span of large fluctuations, prices in the Northeast began a rapid ascent in trading on Tuesday, January 13, more than doubling the previous day's level at some locations. The ascent accelerated the following day, leaving prices more than 600 percent higher than the previous week at some markets. Prices at New York City and the Algonquin citygate, which serves most of the New England region, averaged $44.81 and $64.22, respectively, on Wednesday, January 14, up from $8.16 and $9.13 per MMBtu on the previous Wednesday. Large increases in weather-driven demand and constrained pipeline capacity in the region contributed to the sharp increases in prices.

At the NYMEX, the price of the futures contract for February delivery at the Henry Hub increased about 49 cents or 7 percent since last Wednesday (January 7). Similarly, the price of the futures contract for March delivery at the Henry Hub declined about 20 cents per MMBtu or 3 percent. As in the spot markets, the price of the February contract is significantly higher than last year at this time. Yesterday, January 14, the February contract settled about $1.28 per MMBtu or 25 percent higher than last year's level.

Storage:

Working gas in storage was 2,414 Bcf as of Friday, January 9, 2004, according to the EIA Weekly Natural Gas Storage Report. This is 8.3 percent above the 5-year average for the report week and 184 Bcf above the level last year for the same week. (See Storage Figure) The implied net withdrawal during the report week was 153 Bcf, which is 8 percent more than the 5-year average withdrawal of 142 Bcf for the week, and nearly 13 percent more than the withdrawal of 136 Bcf reported for the same week last year. Cooler-than-normal temperatures across most of the Lower 48 States likely contributed to the larger-than-normal withdrawals of natural gas from storage.(See Temperature Map) (See Deviations Map) Nevertheless, through the first 10 weeks of the heating season net withdrawals from storage are about 741 Bcf, which is 11 percent below the 5-year average for the same 10-week period.

Other Market Trends:

Utilities Report Record Gas Use: Last week's massive cold front in the Northeast led to record natural gas consumption in several Northeast utility service areas. On Friday, January 9, KeySpan Corporation's Long Island utility set a new record with a sendout of 685,700 MMBtu, surpassing the former high sendout of 667,930 MMBtu, set on January 23, 2003. That record was broken the following day, when gas sendout reached 702,000 MMBtu. Also on January 9 in New England, KeySpan's natural gas demand reached 1,265,531 MMBtu, surpassing the January 22, 2003 record of 1,203,383 MMBtu, and well in excess of a normal demand load of about 705,652 MMBtu. South Jersey Gas reported that it sent out a record 427,999 MMBtu to more than 300,000 residential, commercial and industrial customers on January 10. This sendout tops the former single-day record of 420,405 MMBtu, which was also set on January 23, 2003. Recent frigid temperatures in the West have also produced record sendouts at some utilities. For example, Puget Sound Energy on January 4 delivered a record 716,000 MMBtu, breaking the old record of 678,000 MMBtu set on December 21, 1998. Puget Sound Energy has 636,000 natural gas customers.

Summary:

Moderating temperatures reduced natural gas demand in most parts of the country, contributing to lower spot prices at most market locations. However, prices surged in the Northeast as an arctic front moved into the region. Prices fell at the NYMEX futures market from last week's level. Working gas in storage decreased to 2,414 Bcf, which is 8.3 percent above the 5-year average.

Natural Gas Summary from the Short-Term Energy Outlook