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Overview: Thursday, July 15 (next release 2:00 p.m. on July 22)
Natural gas spot and futures prices moved lower on the week (Wednesday to Wednesday, July 7-14), as generally cooler-than-normal temperatures prevailed most days in key weather-sensitive markets. At the Henry Hub, the spot price declined 37 cents, or nearly 6 percent, from last Wednesday’s level, averaging $5.91 per MMBtu in yesterday’s (Wednesday, July 14) trading. On the futures market, the NYMEX futures contract for August delivery declined most days, dipping below $6 in Monday trading for the first time in more than two months. Despite slight increases over the next two days, the August contract settled yesterday at $5.977 per MMBtu, down $0.393 from the previous Wednesday (July 7). EIA reported that inventories were 2,155 Bcf as of Friday, July 9, which is 2.6 percent greater than the 5-year average. Primarily on the strength of yesterday’s $1.43 per barrel increase, the spot price for West Texas Intermediate crude oil exceeded $40 for the first time in more than 6 weeks, gaining $1.80 per barrel on the week to trade yesterday at $40.98, or $7.07 per MMBtu.
Spot prices fell most days and ended the week lower at all market locations, with decreases primarily ranging from about a dime to almost 50 cents per MMBtu. Unseasonably cool temperatures predominated from Wednesday through Sunday in much of the Nation east of the Mississippi River as well as along the California coast, sending prices down from 30 to 49 cents per MMBtu in the consuming regions of the Midwest and Northeast as well as in trading locations in South and East Texas and along the Gulf Coast. The New York and Chicago citygate prices fell $0.43 and $0.38 respectively, to $6.30 and $5.87 per MMBtu. Florida Gas Transmission (FGT) lifted its long-lived Overage Alert Day notice on Monday as cooler temperatures dampened air conditioning demand. The FGT citygate price fell $0.36 on the week to $6.33 per MMBtu. Conversely, in California, PG&E and SOCAL lifted high-linepack operational flow orders that had been in effect for the weekend, reflecting rising temperatures in the State and continuing heat in the Southwest. For the week, California prices declined 11 cents, to an average $5.74 per MMBtu. Prices dropped the least in the Rockies, as the average for the region fell by 9 cents, to $5.33 per MMBtu.
On the NYMEX, futures prices declined significantly under the pressure of robust storage levels and the lack of significant weather developments. The near-month contract (for August delivery) declined on the first three trading days en-route to a weekly decline of $0.393 per MMBtu. The August contract settled yesterday at $5.977 per MMBtu. A number of factors have contributed to softening futures prices, including the generally above-average storage injections in recent weeks, a fairly mild summer to date, particularly in the key air-conditioning markets in the West South Central Census Division, and near-term National Weather Service forecasts for continuing normal to below-normal temperatures for most of the nation east of the Mississippi River. Futures prices for contracts for delivery in September 2004 through March 2005 declined by nearly 17 to nearly 38 cents per MMBtu on the week. As of yesterday’s trading, the highest-priced gas through the end of the coming heating season was for delivery in January, at $6.827 per MMBtu.
Recent Natural Gas Market Data
Natural gas stocks stood at 2,155 Bcf as of Friday, July 9, which is 2.6 percent greater than the previous 5-year (1999-2003) average, according to the EIA’s Weekly Natural Gas Storage Report of July 15 (See Storage Figure). The implied net injection of 108 Bcf marks the second consecutive week of 100+ Bcf injections—only the second time in the more than 10-year span of EIA weekly data that injections have exceeded 100 Bcf for these two consecutive weeks of the refill season. Injections exceeded the 5-year average by over 40 percent for the nation as a whole, and by over 30 percent and nearly 117 percent, respectively, in the East and Producing regions. The week covered by these storage data included the Fourth of July holiday weekend, which suppressed gas demand and likely allowed relatively more gas to be injected into storage. And, while cooling degree days (CDD) for the nation as a whole were normal, they were less than normal for the potentially high air-conditioning load Census Divisions of the West South Central (0.8 percent), West North Central (22.7 percent), and East North Central (17 percent). (See Temperature Map) (See Deviations Map)
Other Market Trends:
State Authorities Dispute FERC’s Jurisdiction Over Siting of Projects: The Federal Energy Regulatory Commission’s (FERC) dispute with state authorities over the siting of energy infrastructure projects continues. The California Public Utilities Commission (CPUC) voted on July 8, 2004, to challenge FERC’s decision to deny its claim of jurisdiction over Sound Energy Solutions’ LNG terminal in Long Beach, California. CPUC claimed jurisdiction in February, contending that the gas imported would be consumed within California and therefore would not be subject to Federal regulation. The CPUC argued that FERC’s authority is limited under the Natural Gas Act to the importation of LNG and does not extend to terminal siting. FERC, however, claimed it had the authority over siting as the importation of LNG is foreign commerce and thus falls under Federal authority. It is expected that these issues will be settled in the District of Columbia Court of Appeals. California is not the only state that has challenged FERC’s authority. Texas Railroad Commissioner Charles Matthews also has been advocating a greater role for states in LNG terminal siting.
Nova Scotia’s Potential for LNG Terminal Development: Recently, Nova Scotia has been gaining interest as a prospective location for liquefied natural gas (LNG) projects. At least three companies are planning LNG projects in the area, while another one is looking for a suitable site for an LNG terminal along the Canadian Atlantic Coast. There are several factors that make Nova Scotia desirable for LNG projects, including a year-round, ice-free deepwater harbor capable of handling the world’s largest commercial vessels; a wide turning area with an open access for even the largest LNG tankers; and a close proximity to an existing international pipeline. However, among the biggest benefits of the Atlantic Canada locations is their close proximity to major Canadian and U.S. markets and international trade routes, which makes them accessible to LNG producers in the Atlantic Basin.
Spot prices fell nationwide, and by significant amounts in most regions, as cooler-than-normal temperatures were recorded for much of the week in most major gas-consuming areas. Futures prices declined from the cumulative pressure of mostly moderate summer weather to date and near-term forecasts for the same, as well as continuing strong storage injections that have tended to exceed the 5-year averages.
Natural Gas Summary from the Short-Term Energy Outlook
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