Overview:
Thursday, September 9 (next release 2:00 p.m. on September 16)
Downward pressure on prices during August carried
over to the first week of September as mostly moderate temperatures during the
holiday-shortened trading week resulted in net price declines. Since Wednesday,
September 1, natural gas spot prices have declined between 11 and 43 cents per
MMBtu at trading locations in the Lower 48 States. For the week
(Wednesday-Wednesday, September 1-8), the spot price at the Henry Hub in Louisiana
fell 34 cents or roughly 7 percent to $4.69 per MMBtu. The price of the NYMEX
futures contract for October delivery at the Henry Hub decreased 33.4 cents per
MMBtu since last Wednesday to settle at $4.631 yesterday (September 8). Natural gas in storage increased to 2,775
Bcf, which exceeds the 5-year average by 7.1 percent. The spot price for West
Texas Intermediate (WTI) crude oil moved down $1.12 per barrel or about 2.6
percent since last Wednesday, to a price of $42.77 per barrel or $7.37 per
MMBtu.
Spot prices reached their low for the week heading
into the past weekend amid market expectations of moderate weather and lessened
industrial demand owing to the holiday weekend. On Friday, September 3, the
Henry Hub price fell 41 cents per MMBtu to $4.33, which is the lowest price
recorded at the trading location since October 10, 2003. However, this was
followed by rebounds in prices since Tuesday, September 7, at least in part
owing to concerns that yet another tropical storm (Hurricane Ivan) may threaten
production in the Gulf of Mexico. On the week, the Henry Hub price registered a
net decline of 34 cents. Although there is still considerable uncertainty
regarding Hurricane Ivan’s path, the storm is expected to make landfall in
western Florida remaining east of most Gulf production. Contributing factors to
overall declining prices this week also included an improving supply outlook
with storage levels well above the 5-year average and a slight easing in oil
prices. Spot price declines were generally in a range of 25 cents to 40 cents
per MMBtu throughout the Gulf Coast and East Texas producing region, while
hotter temperatures and associated increased demand for gas-fired electric
power resulted in lesser declines of 10 to 20 cents on the week in the West. On
Wednesday, September 8, the California Independent System Operator (ISO) of the
state electric grid said California residents set a new record peak demand of
45,597 megawatts of electricity, topping the previous day’s record peak of
45,165 megawatts. Power resources were adequate and no electrical emergencies
were required. In contrast to high temperatures in the West, moderate weather
reigned in the Northeast, resulting in net price decreases this past week in a
range of 23 to 38 cents per MMBtu.
At
the NYMEX, the price of the futures contract for October delivery at the Henry
Hub has decreased 33.4 cents per MMBtu since Wednesday, September 1, to settle
at $4.631 per MMBtu yesterday. The near-month futures price has fallen in four
of the past five sessions (since September 1) to the lowest price for a
near-month contract since November 20, 2003. Similar to the factors driving
spot prices, relatively high volumes of natural gas in storage and moderate
temperatures appear to be easing futures prices. The October 2004 contract is
priced approximately the same as the October 2003 contract, which traded at
$4.661 per MMBtu on September 8, 2003. However, the prices of the futures
contracts for delivery during the remaining months in 2004 and the winter
months of 2005 are considerably higher. Prices of the contracts for the peak
winter months of December 2004 through February 2005 were more than $1.78 per
MMBtu above the current Henry Hub spot price on average as of September 8. This relative price pattern remains a strong
incentive for continued additions of natural gas to storage for the winter
heating season.
Recent Natural Gas
Market Data
|
Estimated Average Wellhead Prices |
||||||
|
|
Feb-04 |
Mar-04 |
Apr-04 |
May-04 |
Jun-04 |
Jul-04 |
|
Price
($ per Mcf) |
5.15 |
4.97 |
5.20 |
5.63 |
5.85 |
5.60 |
|
Price
($ per MMBtu) |
5.01 |
4.83 |
5.06 |
5.48 |
5.69 |
5.45 |
|
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 inventories increased to 2,775 Bcf as of Friday, September 3, according to
EIA’s Weekly Natural Gas Storage Report.
This is 7.1 percent above the 5-year
average for the report week, and 10.2 percent above the level for the same week
last year. (See Storage Figure) The
implied net additions during the report week were 80 Bcf or an average of 11.4
Bcf per day, which is equal to the 5-year average injection for the report
week. The relatively strong current
storage levels suggest inventories entering the winter heating season this year
will likely exceed the 5-year average. To meet the 5-year average of 3,039 Bcf
for the end of October, injections for the eight remaining weeks of the refill
season in September and October would have to average 33 Bcf per week, or about
4.6 Bcf per day. However, if injections this year follow the pace of the 5-year
average (of about 8.7 Bcf per day), storage levels would reach more than 3,260
Bcf. This would exceed last year’s working gas stocks entering the
heating season by about 4.2 percent, or about 133 Bcf, and the 5-year average
for the end of the refill season by 7.3 percent, or about 224 Bcf. The
week covered by this report saw temperatures that were above normal and
slightly above those for the comparable week last year for the nation as a
whole. In terms of cooling degree days (CDDs), according to the latest data
from the National Weather Service for the week ended Saturday, September 4, the
nation as a whole recorded 7.7 percent more CDDs than normal and 1.8 percent
more than last year. (See
Temperature Map) (See Deviations Map)
.
Other
Market Trends:
Well
Closures in the Gulf of Mexico Owing To Storm Activity: Hurricane Frances was still a Category Three storm
by Friday, September 3, as it approached Florida and consequently led a number
of Gulf of Mexico (GOM) producers to evacuate employees and shut in production.
However, the impact of Frances on production in the Gulf was limited. According
to the Minerals and Management Service, as of Tuesday, September 7, the
cumulative shut-in natural gas and oil production for the 5-day period,
September 3-7, was equivalent to about 118 million cubic feet and 62 thousand
barrels, respectively. The entire Gulf
produces about 12 billion cubic feet per day of gas and 1.6 million barrels per
day of oil. A total of 16 platforms and 17 rigs were evacuated, which
represents only about 2 percent of the 764 manned platforms and about 14
percent of the 117 rigs currently operating in the GOM. As of September 7, all operations were
reported back online.
Summary:
Reduced industrial demand during the Labor Day
weekend and moderate temperatures in the Midwest and Northeast resulted in the
lowest spot prices since October 2003. Futures prices also fell throughout the
week with perceptions of the upcoming adequate storage supplies for the winter.
Implied net injections into storage of 80 Bcf brought natural gas stocks to
2,775 Bcf, which is 7.1 percent above the 5-year average.
