for week ending May 26, 2004 | Release date: May 27, 2004 | Previous weeks
Overview:
Thursday, May 27 (next release 2:00 p.m. on June 3)
High crude oil prices and increasing cooling demand
contributed to natural gas spot prices climbing 20 to 55 cents per MMBtu at most trading locations in the Lower 48 States
since Wednesday, May 19. On the week (Wednesday-Wednesday, May 19-26), the
Henry Hub spot price rose 52 cents per MMBtu to
$6.70. The NYMEX futures contract for June delivery gained 22.5 cents per MMBtu on the week to a monthly settlement price of $6.68 in
its final day of trading on Wednesday, May 26. Working gas in storage as of
Friday, May 21, increased to 1,477 Bcf, which is 0.1
percent below the 5-year (1999-2003) average. The spot price for West Texas
Intermediate (WTI) crude oil decreased $1.01 per barrel on the week to $40.60,
or $7.00 per MMBtu.
Prices
moved higher in three of five trading sessions this week as new
air-conditioning load, a significant loss of offshore production, and high oil
prices renewed concerns over a tight natural gas market. The Henry Hub spot
price on Tuesday, May 25, increased to its highest level since January 9, 2004,
averaging $6.72, before slipping 2 cents to $6.70 yesterday (May 26). The Henry
Hub price and other Gulf Coast prices gained approximately 8 percent on the
week, likely owing at least in part to the shutdown of the Shell's Mars
platform on Saturday, May 22, following the detection of a sheen of oil on the
water that apparently came from a ball and socket connector that allows
pipelines to the platform to move with ocean currents. The shutdown, which
Shell said would result in approximately 170,000 Mcf
per day of lost natural gas production, is expected to last two weeks or more.
In the Northeast region, prices increased an average of 45 cents per MMBtu in tandem with higher Gulf prices, with demand in
both regions higher likely owing to hotter weather and associated higher
air-conditioning load. The price for spot gas off Texas Eastern Transmission in
the Mid-Atlantic rose 53 cents per MMBtu on the week
to $7.28, the highest price in the country. Prices in the West, including the
Rockies, registered slightly lower gains of between 21 and 44 cents per MMBtu as temperatures moderated in parts of Nevada,
Arizona, and California. The Southern California Border price increased 25
cents on the week to $6.10 per MMBtu.
At
the NYMEX, the futures contract for June delivery expired on Wednesday, May 26,
at $6.68 per MMBtu, which is the highest expiration
price for a near-month contract since February 26, 2003, when the March 2003
contract expired at the record high $9.133. On Monday, May 24, the June
contract increased more than 35 cents as traders responded to higher oil prices
during the day and the news of the Mars platform closure. Despite small price
declines in the next two trading sessions, the near-month contract gained
almost 23 cents, or 3.5 percent, on the week. The June contract's expiration
price is about 13 percent more than its debut settlement price of $5.924 at the
beginning of its tenure as the near-month contract on April 29, and about 12
percent higher than the monthly settlement price of the June 2003 contract
($5.945). During this time of year, the NYMEX futures contract for delivery
during January of the upcoming winter season is typically the highest priced
contract. The January 2005 contract closed yesterday at $7.191 per MMBtu, an increase of 16.3 cents on the week and a basis of
49.1 cents to yesterday's Henry Hub spot price. This basis provides an economic
incentive for industry to store natural gas for the upcoming heating season.
Recent Natural Gas
Market Data
Estimated Average Wellhead Prices |
||||||
|
Nov-03 |
Dec-03 |
Jan-04 |
Feb-04 |
Mar-04 |
Apr-04 |
Price ($ per Mcf) |
4.34 |
5.08 |
5.53 |
5.15 |
4.97 |
5.20 |
Price ($ per MMBtu) |
4.22 |
4.94 |
5.38 |
5.01 |
4.83 |
5.06 |
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 1,027 Btu per cubic foot as published in Table A4 of
the Annual Energy
Review 2002. |
||||||
Source:
Energy Information Administration, Office of Oil and Gas. |
Working
gas in underground storage was 1,477 Bcf as of May
21, which is 0.1 percent below the 5-year average inventory level for the
report week, according to EIA's Weekly Natural Gas
Storage Report (See
Storage Figure). Continuing a string of relatively robust net injections, the
implied net change for the week totaled 89 Bcf, which
is 17 percent higher than the 5-year average injection of 76 Bcf, but 6 percent lower than last year's injection of 95 Bcf for the report week. To date, injection activity this
season has reduced the deficit to the 5-year average from 5.7 percent, or 63 Bcf, on April 2, to 0.1 percent, or 2 Bcf,
as of May 21. Although inventories in the East region continue to lag 4.8
percent behind the 5-year average, Producing region inventories are now 9.1
percent higher. During the report week, the weather for the country as a whole
was about 50 percent warmer than normal, as measured by cooling degree days (CDDs) for the week ending May 22, according to the National
Weather Service (See
Temperature Map) (See Deviations Map.) Key markets for cooling demand were considerably
warmer than normal. In the West South Central, including Texas, CDDs were 34 percent higher than normal. In the South
Atlantic region, CDDs were 56 percent higher than
normal. So far this refill season, CDDs have numbered
37 percent higher than normal and 19 percent higher than last year.
Other
Market Trends:
National Weather Service Sees Potential
for Active Hurricane Season: The traditional hurricane season (June 1-November 30) has
a 50 percent probability of being above normal in the Atlantic Ocean this year,
according to the annual pre-season outlook released last Monday (May 17) by the
National Weather Service (NWS) of the National Oceanic and Atmospheric
Administration. Specifically, NWS is
calling for 12 to 15 tropical storms (cyclonic systems with sustained winds of
39-73 miles per hour (mph)), with 6 to 8 becoming hurricanes (winds of 74 mph
or greater), and 2 to 4 of these becoming major hurricanes (storms of Category
3 through 5 on the Saffir-Simpson Hurricane Scale,
with sustained winds of at least 111 mph).
The"average" season in the Atlantic features 10
tropical storms, 6 hurricanes, and 2 major hurricanes, according to NWS. If NWS' predictions come true, this will be
the eighth year in the past ten for above-normal hurricane activity. Further, NWS pointed out that past seasons
with activity similar to that predicted for this year have produced 2 to 3
storms that have made landfall in the continental United States. As for the West coast, NWS foresees four to
five tropical cyclones in the central Pacific, which is close to normal for
that area.
Pipeline Operators Face Inspection
Deadlines: Regulations issued earlier this year by the
Office of Pipeline Safety (OPS) within the U.S. Department of Transportation,
pursuant to the Pipeline Safety Improvement Act of 2002, require all natural
gas pipeline operators to pass three milestones before the end of this year on
their way towards implementing the gas pipeline integrity management standards
specified in the Act. In accordance with
the law, OPS rules require as a first step the inspection of all pipeline
segments in a given pipeline's riskiest "high-consequence areas" (i.e., locations
where a pipeline rupture and explosion could cause the most injuries and/or
property damage) to be completed within 5 years from enactment of the law. By June 17, each operator must have begun
preparing to conduct a baseline integrity assessment on at least one high-risk
pipe segment already identified by the operator. Specifically, the operator must have a
schedule in-hand for assessment of previously identified high-risk segment(s),
and must either have begun the assessment on the first scheduled segment, or
have contracted for, or be negotiating a contract for, the assessment of the
identified segment(s). By August 31,
operators must submit their first overall performance reports on their
respective pipeline systems to OPS and by December 17 must identify all
high-consequence areas along their systems and have written their respective
pipeline integrity management programs.
The second step required by the OPS rules requires inspection of all
non-high-risk pipeline segments within the follow-on 5-year period, with all
baseline assessments to be completed by 2012.
The regulations also require re-inspections of all segments every 7
years.
DOE Says Newly Developed Drill Pipe
Could Increase Oil and Gas Production: On Monday, May 17, the U.S. Department of Energy
announced the successful development of a new drill pipe made from carbon-fiber
resins that make it lighter, stronger, and more flexible than comparable steel
pipe. The new composite-materials pipe,
measuring 2 ½ inches in diameter, stands up much better to the stress and fatigue
associated with horizontal drilling, a relatively new drilling technique that
is usually more productive than traditional vertically-drilled wells because
more pipe surface area can be brought into contact with the producing zone in a
reservoir. Because the new pipe can
rotate through a short-radius bend and hold this orientation for long periods
without fatigue damage, its use may enhance producers' ability to reach and
recover untapped oil and gas reserves. Successful
field tests of the new pipe in Oklahoma resulted in enhanced production of oil
at one test site and facilitated the discovery of gas at another site. While the new pipe is more expensive than
steel, it can be reused for multiple wells which can significantly reduce
drilling costs, according to DOE.
Further, it may eventually be possible to embed electrical wire in the
resin to allow for the electronic transmission of data to and from the drill
bit. Finally, DOE is looking at the
possibility of developing larger-diameter pipes for deep-water applications.
Natural Gas
Rig Count: The number of rigs drilling for natural gas
climbed by 14 to 1,018 for the week ending May 21, according to Baker-Hughes
Incorporated. This is the highest count since gas rigs in
the week ended August 31, 2001 were 1,030.
This is the second consecutive week and the third week in the past four
that the number of rigs drilling for gas has exceeded 1,000. Gas rigs were at a low of 673 as of November
8, 2002. Since then, gas rigs have grown
steadily. During this period, the rigs
drilling gas prospects increased by an average of four per
week. Since the beginning of this year,
the rate of change has been an increase of three drilling rigs per week. Gas rigs have comprised at least 85 percent
of the drilling in the United States in almost every week since June 13,
2003. This is the longest period in
which gas rigs have been such a large proportion of total rigs running.
Summary:
Natural
gas spot prices at most market locations increased 20 to 55 cents per MMBtu owing to higher crude oil prices and the prospect of
higher demand with the approaching summer season. The NYMEX price for June
delivery at the Henry Hub climbed about 23 cents per MMBtu
to a monthly settlement of $6.68 on Wednesday, May 26. Natural gas in storage
increased to 1,477 Bcf, reducing the deficit to the
5-year average volume. The implied net increase in storage inventories on the
week was 89 Bcf.
Natural
Gas Summary from the Short-Term Energy Outlook