Overview:  Thursday, July 1 (next release 2:00 p.m. on July 8)

Since Wednesday, June 23, natural gas spot prices have decreased at virtually all market locations in the Lower 48 States.  For the week (Wednesday-Wednesday), prices at the Henry Hub decreased 24 cents or about 4 percent to $6.05 per MMBtu.  Yesterday (June 30), the price of the NYMEX futures contract for August delivery at the Henry Hub settled at $6.155 per MMBtu, decreasing roughly 33 cents or about 5 percent since last Wednesday.  Natural gas in storage was 1,938 Bcf as of June 25 which is 0.5 percent above the 5-year average.  The spot price for West Texas Intermediate (WTI) crude oil fell 64 cents per barrel or nearly 2 percent on the week to $36.92 per barrel or $6.37 per MMBtu.

 

 

 

Prices:

Widespread moderate temperature conditions and falling crude oil prices contributed to price declines of between 10 and 49 cents per MMBtu at virtually all market locations in the Lower 48 States since last Wednesday, June 2, with declines exceeding 30 cents per MMBtu at most market locations.  After prices climbed 10 to 20 cents per MMBtu at most market locations on Thursday, June 24, they then fell during the next four trading days.  The steepest declines occurred principally in the Northeast, Louisiana, and Texas regions, where prices fell more than 35 cents per MMBtu since last week.  Despite these widespread declines, prices remain high relative to last year’s levels, exceeding last year’s level by more than 8 percent.  For example, prices at the Henry Hub are 70 cents or 13 percent above last year’s level.

 

 

At the NYMEX, the price of the futures contract for August delivery at the Henry Hub decreased about 33 cents per MMBtu or nearly 5 percent since last Wednesday to $6.155 per MMBtu.  The prices of the futures contracts for delivery in each of the following 5 months fell about 25 to 33 cents or about 4 to 5 percent from last Wednesday’s levels.  Futures contract prices for each month through the remaining months of 2004 and January 2005 exceed the Henry Hub spot price by 10 to 76 cents per MMBtu with each successive month larger than the preceding month.  The January 2005 contract traded at a 76-cent premium to the Henry Hub spot price yesterday (June 30).  With the futures strip through next winter trading at a significant premium to the Henry Hub spot price, economic incentives to inject gas into storage remain significant.   The contract for July delivery at the Henry Hub expired on Monday, June 28 at $6.141 per MMBtu, falling about 47 cents per MMBtu or 7 percent since it first became the prompt-month contract on May 28.    

 

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.

 

Storage:

Working gas in storage was 1,938 Bcf as of Friday, June 25, 2004, according to the EIA Weekly Natural Gas Storage Report.  This is 10 Bcf, or about 0.5 percent, above the 5-year average for the report week.(See Storage Figure)  The implied net injection during the report week was 93 Bcf, which is about 13 percent above the 5-year average net addition of 82 Bcf for the week and 4 Bcf below the injection of 97 Bcf reported for the same week last year.  Cooling degree days were about 22 percent above normal on average in the Lower 48 States during the week ended June 26.(See Temperature Map) (See Deviations Map)  Despite the relatively warm temperatures, the above-average injections likely can be attributed to the futures prices strip for the peak heating season months December 2004 through February 2005) trading at a premium of more than 57 cents per MMBtu above the Henry Hub spot price on average during the week ended June 25.

 

 

Other Market Trends:

Shell Reopens Its Mars Platform:  Shell’s Mars tension leg platform reopened on Monday, June 28, 2004, after being closed since May 22, 2004.  The platform opened after temporary repairs were made to the flexjoints on the oil lines and permanent repairs to the natural gas lines.  A temporary repair had been made to the oil line to allow production to continue.  Sometime later in the summer the Mars Platform is expected to close again for about 7 days, allowing time to refurbish the temporary flexjoints on the oil line.  According to Shell, the facility is currently pumping down the process vessels, and production is expected to reach its pre-shut-in rate of 150,000 barrels of oil per day and 170 million cubic feet of gas per day within two to three days.

 

Department of Transportation Issues “Smart Pig” Final Rule:  The purpose of the regulation is to make pipelines open to the passage of instrumented internal inspection devices, also called smart pigs, wherever practicable.  Smart pigs flow with the substance traveling through the pipeline collecting and analyzing data from the pipeline to help operators determine the physical condition of the pipeline.  The final rule requires that new onshore gas transmission lines and sections of existing lines that need to be replaced would be designed and constructed to accommodate the passage of smart pigs.  This is considered an effective approach for operators to detect pipeline problems before major difficulties occur.  For offshore transmission lines, the final rule is restricted to 10-inch diameter or bigger pipelines that run between platforms or from platforms to shore.  This affects only those offshore transmission lines on which construction begins after December 28, 2005.  The final rule takes effect on July 28, 2004. 

 

EIA Update on U.S. LNG Markets and Uses:  The Energy Information Administration (EIA) has updated its earlier report that examined domestic liquefied natural gas (LNG) markets and uses, focusing on the different aspects of LNG, marine terminal operations and peak-shaving storage facilities (U.S. LNG Markets and Uses: June 2004 Update). Liquefied natural gas has become an increasingly important part of the U.S. energy market. Rising prices in recent years, increased competition, technological advances, and lower costs have fostered growth in LNG imports. Further, LNG storage facilities continue to be important in meeting peak demand needs of local utilities and as a way to store gas until needed. According to this report, there are 113 active LNG facilities in the United States, including import and storage facilities. While the LNG sector has a strong potential for growth in the coming years, the level of growth will depend on several factors such as the public’s perception of the need for additional natural gas supplies, and the safety and reliability of LNG compared with other fuel choices. Of the more than 20 proposed facilities currently before regulatory authorities, only three facilities, Cameron LNG in Hackberry, LA, and Energy Bridge and Port Pelican LNG, both of which are offshore LA, have received approval for construction as of mid June.

 

Summary:

Falling crude oil prices and moderate temperatures contributed to lower spot prices at most market locations.  Prices decreased about 5 percent at the NYMEX futures market from last week’s level.  Working gas in storage increased to 1,938 Bcf, which is 0.5 percent above the 5-year average.

 

Natural Gas Summary from the Short-Term Energy Outlook