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Overview: Thursday, April 8, 2004 (next release 2:00 p.m. on April 15)
Natural gas spot prices have increased since Wednesday, March 31, at most market locations in the Lower 48 States. For the week (Wednesday-Wednesday), prices at the Henry Hub increased 13 cents or about 2 percent to $5.76 per MMBtu. Yesterday (Wednesday, April 7), the price of the NYMEX futures contract for May delivery at the Henry Hub settled at $5.872 per MMBtu, decreasing roughly 6 cents or 1 percent since last Wednesday. Natural gas in storage increased to 1,034 Bcf as of April 2, which is less than 6 percent below the 5-year average. The spot price for West Texas Intermediate (WTI) crude oil climbed 53 cents per barrel or about 1.5 percent since last Wednesday, to $36.28 per barrel or $6.255 per MMBtu.
Spot gas prices increased at nearly all market locations in the Lower 48 States since last Wednesday, March 31, climbing up to 59 cents per MMBtu. Factors contributing to the run-up in natural gas prices include a lingering chill in most of the Northeast, Mid-Atlantic and Midwest regions, climbing crude oil prices, and storage injection demand. The largest increases occurred principally west of the Rocky Mountains, where prices climbed between 23 and 59 cents per MMBtu, increasing between 4 and 11 percent. A couple of isolated markets in Texas also had increases of 24 cents per MMBtu or nearly 5 percent. Elsewhere in the Lower 48 States, price hikes were significantly less pronounced as prices climbed less than 15 cents per MMBtu or 3 percent since last Wednesday, March 31. With these price hikes, prices at most market locations now exceed last year’s level between 10 and 22 percent. For example, as of Wednesday, April 7, prices at the Henry Hub exceeded last year’s level by about 19 percent.
At the NYMEX, the price of the futures contract for May delivery at the Henry Hub decreased about 6 cents or 1 percent since last Wednesday (March 31). Similarly, the price of the futures contracts for delivery through the other remaining refill season months (June-October) also decreased up to 3 cents per MMBtu or less than 1 percent. The prices of the futures contracts for each month through the remaining months of 2004 exceed the Henry Hub spot price by 11 to 56 cents per MMbtu. With the futures strip through the remaining months of 2004 trading at a significant premium to the Henry Hub spot price, suppliers have strong economic incentives to inject gas into storage.
Recent Natural Gas Market Data
Working gas in storage was 1,034 Bcf as of Friday, April 2, 2004, according to the EIA Weekly Natural Gas Storage Report. This is about 6 percent below the 5-year average for the report week and 346 Bcf above the level for the same week last year. (See Storage Figure). The implied net injection during the report week was 20 Bcf, which marks the first overall net injection recorded in 2004. This is a marked difference from both the 5-year average withdrawal of 1 Bcf for the week and the withdrawal of 8 Bcf reported for the same week last year. Futures prices trading at a significant premium to the Henry Hub spot price during most of the report week and warmer than normal temperatures through most of the Lower 48 States likely contributed to the net injections of natural gas into storage. (See Temperature Map) (See Deviations Map)
Other Market Trends:
Canada Looks to Step Up Coalbed Methane Production: The Albertan Government has begun a series of public meetings with stakeholders to examine issues related to development of Canada’s significant coalbed methane (CBM) resources. CBM is natural gas or methane that is found in coal seams. The gas is attached to coal, instead of being trapped in the pores of rock as in conventional resources. The National Energy Board of Canada estimates up to 80 trillion cubic feet (Tcf) of gas in the country’s coal seams is recoverable. Coalbed methane production has increased significantly in the United States in recent years. U.S. production in 2002 totaled 1.6 Tcf, 8 percent of total dry gas production, up more than 1 Tcf in 10 years. Coalbed production in Canada is still in its infancy with only about 13 Bcf produced last year, according to a recent report by Lehman Brothers. The report, Insight on Canadian CBM, notes that CBM opportunities are believed to have the potential possibly to double proved conventional natural gas reserves of 42 Tcf in Alberta and eventually contribute 3 Bcf/d or about 15 percent of total Canadian natural gas production of about 16.4 Bcf/d. With U.S. natural gas imports from Canada of approximately 10.6 Bcf/day, the development of CBM resources in Canada could pay a significant role in meeting Lower 48 demand in the future. To date, most of CBM development has targeted the Horseshoe Canyon in South-Central Alberta, according to the Lehman report. Meetings with stakeholders and the public are being held through April with the goal of submitting a final report on improvements to Canada’s fiscal and tax regimes for CBM development by November 2004.
Pemex Chief Announces Production Increase in 2003: Mexico’s national oil and gas company Pemex increased natural gas production in 2003 to approximately 4.5 billion cubic feet (Bcf) per day, the company said. In a statement released Friday, April 2, Pemex said that the 1.7 percent year-over-year increase reversed a 7.7 percent decline since 1998, in part owing to decreased output from its prolific Cantarell field. Speaking at an industry conference, Pemex General Director Raul Munoz said that Pemex now has a portfolio of 95 exploration and production projects worth over $160 billion. Munoz said the company now intends to exploit prospects in Mexico’s part of the offshore Gulf of Mexico. Despite efforts to develop its natural gas reserves, Mexico has been a net importer of U.S. supplies for several years as power generation demand has grown. Mexico imported roughly 900 MMcf per day from the United States in 2003 to supplement its domestic production, according to the EIA’s Natural Gas Monthly. Mexican President Vicente Fox has voiced support for increasing production through private investment in the upstream oil and gas industry. However, members of the opposition party now controlling Congress have objected to a proposed constitutional amendment that would allow private investment and have indicated intent to challenge “multiple service contracts” (MSCs) recently awarded by Pemex to partner private firms. The MSCs are meant to comply with the country’s constitution, which prohibits foreign ownership of oil and gas resources, by making private companies responsible for 100 percent of the financing and operations associated with a project while mandating that the natural gas produced in a field will remain the property of Pemex.
Natural gas prices increased at most market locations since Wednesday, March 31, amid lingering cool temperatures and rising oil prices. However, prices at the NYMEX futures market declined from last week’s level. Nevertheless, prices in both the spot and futures markets now exceed last year’s levels at this time. Working gas in storage increased to 1,034 Bcf, which is nearly 6 percent below the 5-year average.
Natural Gas Summary from the Short-Term Energy Outlook
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