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.

 

 

 

 

Prices:

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.

 

Storage:

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. 

 

 

 Short-Term Energy Outlook