for week ending August 4, 2004 | Release date: August 5, 2004 | Previous weeks
Overview:
Thursday, August 5 (next release 2:00 p.m. on August 12)
Since
Wednesday, July 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 declined 7 cents or
about 1 percent to $5.70 per MMBtu. Yesterday (August 4), the price of the NYMEX
futures contract for September delivery at the Henry Hub settled at $5.661 per MMBtu, decreasing roughly 48 cents or nearly 8 percent
since last Wednesday (July 28). Natural
gas in storage was 2,380 Bcf as of July 30, which is
4.3 percent above the 5-year average.
The spot price for West Texas Intermediate (WTI) crude oil fell 8 cents
per barrel or less than 1 percent on the week to $42.73 per barrel or $7.367
per MMBtu, despite reaching a record high of $44.13
per barrel during the week.
Weakening
weather fundamentals and decreasing power generation loads since Monday, August
2 led to widespread declines in natural gas spot prices in the Lower 48 States,
despite the price supportive influence of surging crude oil prices. Prices climbed in trading on Thursday, July
29 and on Friday, July 30 as crude oil prices spiked. Crude oil prices peaked on Tuesday, August 3
at $44.13 per barrel or about $7.609 per MMBtu,
setting a new record high. Tropical
storm activity in the Atlantic basin likely contributed to the price rally late
last week. However, by Monday, August 2,
prices began to retreat, as it became clear that Tropical Storm Alex—the first
named storm of the 2004 Atlantic hurricane season—would not pose a significant
threat to natural gas supplies. Price
declines continued through Wednesday, August 4 at most market locations,
spurred by declining temperatures in the Northeast and Midwest regions and
diminishing tropical storm activity in the Atlantic basin. The largest declines in spot prices occurred
in the Midwest and Northeast regions, where prices fell more than 10 cents per MMBtu at most locations.
In contrast to the overall pattern of falling prices, gains in spot
prices since last Wednesday, July 28 were recorded at the majority of locations
in Texas and the Rocky Mountains regions, with increases generally ranging
between 2 and 12 cents per MMBtu. Prices overall
continue to exceed last year's levels by almost a dollar. As of August 4, 2004, prices at the Henry Hub
are $0.88 or 18 percent above last year's level.
At
the NYMEX, the price of the futures contract for September delivery at the
Henry Hub decreased about 48 cents per MMBtu or
nearly 8 percent since becoming the near-month contract last Wednesday, to
$5.661 per MMBtu.
This is the lowest level that the September 2004 contract has reached
since March 29, 2004. While the
September 2004 contract is currently trading at a discount of about 4 cents per
MMBtu to the Henry Hub spot price, futures contract
prices for each month from October 2004 through January 2005 exceed the Henry
Hub spot price by over $0.06 to over $1.19 cents per MMBtu,
with larger differences for each successive month. With the futures strip through next winter
trading at a significant premium to the Henry Hub spot price, economic incentives
to inject gas into storage remain significant.
Recent Natural Gas
Market Data
Estimated Average Wellhead Prices |
||||||
|
Nov-03 |
Dec-03 |
Jan-04 |
Feb-04 |
Mar-04 |
Apr-04 |
Price ($ 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: 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 storage was 2,380 Bcf as of Friday, July 30, 2004,
according to the EIA Weekly Natural Gas Storage Report. This is 98 Bcf, or
about 4.3 percent, higher than the 5-year average for the report week (See
Storage Figure). The implied net injection during the report
week was 83 Bcf, which is about 57 percent above the
5-year average net addition of 53 Bcf for the week
and 7 Bcf more than the injection of 76 Bcf reported for the same week last year. Cooling degree days were about 16 percent below
normal on average in the Lower 48 States during the week ended July 31. The relatively mild temperatures east of the
Rockies likely contributed to the above average injections. (See Temperature Map)
(See Deviations Map)
Other
Market Trends:
MMS Proposes Changes to Gas Royalty
Valuation Rule: The Minerals Management Service (MMS) has
proposed changes to the 1988 Federal Gas Valuation Rule, as announced in the
July 23, 2004, Federal Register. The rule, which was previously amended
in 1998, is used to determine royalties due on natural gas produced on Federal
leases. According to MMS, the considered amendment would offer greater
certainty, clarity and consistency on natural gas valuation issues for the
producers and reflects feedback from a series of workshops MMS held in 2003.
The proposal includes changes to transportation allowances, rate of return
calculations, certain regulatory definitions, and tariffs. MMS will continue to
evaluate some pricing issues such as whether to use NYMEX or index prices in
sales valuation and asked for comments on whether reported spot prices are
reliable. Comments on the proposed changes are due on September 21, 2004.
FERC Issues Draft EIS for Weaver Cove LNG
Import Terminal: The Federal Energy
Regulatory Commission (FERC) issued a draft environmental impact statement
(EIS) on Friday, July 30, 2004, that would allow the construction of the Weaver
Cove LNG terminal, located near Fall River, Massachusetts. The draft EIS was
prepared to satisfy the requirements of the National Environmental Policy Act
(NEPA), as well as the Massachusetts Environmental Policy Act (MEPA). However,
before the final EIS can be issued, the proposed terminal needs to improve
certain environmental and safety requirements. Such requirements include
dredging the river channel, and ensuring the safety of the terminal and the
ships passing through the Narragansett Bay. FERC also made specific
recommendations concerning the potential thermal radiation and exclusion zones
of flammable vapor spread, which could result from equipment damage. FERC found
that the construction and operation of the proposed terminal would have a
limited impact on the environment, as the site was previously used for the
storage and distribution of petroleum products. The proposed facility would
have a regasification capacity of up to 800 million
cubic feet per day (MMcf/d).
Summary:
Spot
prices declined with decreases at selected market locations outside of the Rocky
Mountains and Texas regions. Prices for
the near-term NYMEX futures contract decreased almost 8 percent from last
week's level. Working gas in storage
increased to 2,380 Bcf, which is about 4.3 percent
above the 5-year average.
Natural
Gas Summary from the Short-Term Energy Outlook