Natural Gas

Overview: Thursday, February 5, 2004 (next release 2:00 p.m. on February 12)

Since Wednesday, January 28, natural gas spot prices have decreased at most market locations in the Lower 48 States. For the week (Wednesday-Wednesday), prices at the Henry Hub decreased 30 cents or about 5 percent to $5.74 per MMBtu. Yesterday (February 4), the price of the NYMEX futures contract for February delivery at the Henry Hub settled at $5.654 per MMBtu, decreasing roughly 9 cents or 1.5 percent since last Wednesday. Natural gas in storage was 1,827 Bcf as of January 30, which is 3.4 percent above the 5-year average. The spot price for West Texas Intermediate (WTI) crude oil fell $0.57 per barrel, or about 1.5 percent, since last Wednesday, falling to $33.06 per barrel or $5.70 per MMBtu.

Prices:

A respite from below-normal temperatures led to price declines of at least 12 cents per MMBtu at virtually all market locations in the Lower 48 States since last Wednesday, January 28. The steepest declines occurred in the Northeast region, where prices fell more than $1.54 per MMBtu at most markets. Prices at the New York citygate fell $9.33 or nearly 58 percent to $6.82 per MMBtu since last Wednesday, January 28—the largest decline in the Lower 48 States over the period. Outside the Northeast region, price declines were more modest with the largest decreases of 54 to 94 cents per MMBtu occurring principally in the Midwest. Beginning Thursday, January 29, prices at most locations fell for three days in a row, reaching the lowest levels reported in the New Year before recovering somewhat on Tuesday and Wednesday amid expectations of an approaching cold front. As of Wednesday, February 4, prices at market locations east of the Rockies were within 5 percent of last year's level.

At the NYMEX, the price of the futures contract for March delivery at the Henry Hub decreased about 9 cents or 1.5 percent since last Wednesday, January 28, in its first week as the near-month contract. The prices of the futures contracts for delivery in the following 6 months remained within about 2 cents of last Wednesday's level, with the April contract posting an increase and the others falling. The Henry Hub spot price has traded at a premium to the futures contract for March delivery, indicating that suppliers have economic incentives to withdraw gas from storage. However, with the warmer temperatures and the falling prices at the Henry Hub, the magnitude of the premium diminished, falling from 41 cents per MMBtu on Friday, January 30, to 9 cents per MMBtu on February 4.

Storage:

Working gas in storage was 1,827 Bcf as of Friday, January 30, 2004, according to the EIA Weekly Natural Gas Storage Report. (See Storage Figure) This is 3.4 percent above the 5-year average for the report week and 306 Bcf above the level last year for the same week. The implied net withdrawal during the report week was 236 Bcf, which is 77 percent more than the 5-year average withdrawal of 133 Bcf for the week, and about 13 percent more than the withdrawal of 208 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) Given the larger than average withdrawals in January, net storage withdrawals from the beginning of the heating season are estimated at 1,328 Bcf, which is almost 6 percent above the 5-year average for the same period.

Other Market Trends:

MMS Announces New Incentives for Natural Gas Production: The Minerals Management Service (MMS) on January 23, 2003, unveiled a series of new incentives for the production of natural gas deep under the shallow waters of the Gulf of Mexico. The targeted area for development of gas resources, often called the "deep shelf," is located in water depths less than 656 feet (200 meters) and 15,000 or more feet below the subsea shelf. The new incentives include a royalty suspension on the first 15 billion cubic feet (Bcf) of gas produced from depths greater than 15,000 feet and less than 18,000 feet, or the first 25 Bcf produced from 18,000 feet or greater. A royalty suspension of 5 Bcf will be applied to future production from any depth in the event a producer drills a qualifying dry hole at 18,000 feet or greater. The MMS rule changes have price threshold provisions that discontinue the royalty relief is gas prices rise too high. MMS noted that recent gas discoveries have been made in the deep shelf at Anadarko's Hickory Platform, El Paso's ST 204 unit, and Shell's Alex. Undiscovered resources of up to 55 trillion cubic feet exist in the deep shelf, according to the MMS.

Summary:

Moderating temperatures reduced natural gas demand in most parts of the country, contributing to lower spot prices at most market locations. Prices fell at the NYMEX futures market from last week's level. Working gas in storage decreased to 1,827 Bcf, which is 3.4 percent above the 5-year average.

Natural Gas Summary from the Short-Term Energy Outlook