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Overview: Thursday, September 23 (next release 2:00 p.m. on September 30)
Since Wednesday, September 15, natural gas spot prices have increased at virtually all market locations in the Lower 48 States, owing to the effects of Hurricane Ivan. For the week (Wednesday-Wednesday), prices at the Henry Hub increased 43 cents, or about 8 percent, to $5.59 per MMBtu. Yesterday (September 22), the price of the NYMEX futures contract for October delivery at the Henry Hub settled at $5.629 per MMBtu, increasing roughly 81 cents or about 17 percent since last Wednesday (September 15). Natural gas in storage was 2,942 Bcf as of September 17, which is 7 percent above the 5-year average. The spot price for West Texas Intermediate (WTI) crude oil increased $4.58 per barrel, or about 10 percent, on the week to $48.41 per barrel or $8.347 per MMBtu.
Natural gas prices surged in the wake of Hurricane Ivan, as shut-ins and greater-than-expected damage to natural gas infrastructure significantly reduced gas production in the Gulf of Mexico. Natural gas price increases since last Wednesday, September 15, were widespread, ranging between 25 and 70 cents per MMBtu or about 5 to 16 percent at virtually all market locations. Prices at the Henry Hub climbed 43 cents or about 8 percent since last Wednesday, September 15. Similarly, prices at selected points in the California, Rocky Mountains, Midwest, Texas, and Northeast regions climbed more than 60 cents in the past week. At their peak on Thursday, September 16, production shut-ins in the Federal offshore Gulf of Mexico producing region reached 6.5 Bcf per day (See Other Market Trends). Continuing difficult weather conditions are impeding efforts to assess the storm damage to natural gas infrastructure in the region, and some analysts speculate that it could take up to 2 months to restore production in the Gulf of Mexico to its former levels. This lingering uncertainty about the extent of the damage and the possibility that remnants of Ivan could reconstitute itself as a tropical depression or a tropical storm in the Gulf of Mexico appear to have contributed to the sustained higher level of natural gas prices reported Wednesday, September 22. (As of Thursday, September 23, Ivan has been upgraded to tropical storm status.) Since Hurricane Ivan first posed a threat to the region, prices rose from being slightly below last year’s levels at most market locations to exceeding last year’s levels by 10 to 25 percent at most market locations. As of September 22, 2004, prices at the Henry Hub were about 24 percent above last year’s level.
At the NYMEX, the price of the futures contract for October delivery at the Henry Hub increased about 81 cents per MMBtu or nearly 17 percent since last Wednesday, September 15, to $5.629 per MMBtu. This is the highest settlement price for the October futures contract since August 20, 2004. The futures contracts for delivery during the heating season months exhibited a similar pattern of rising prices, as prices climbed between 6 and 12 percent. While the October 2004 contract is currently trading at a premium of about 4 cents per MMBtu to the Henry Hub spot price, futures contract prices for each month from November 2004 through March 2005 exceed the Henry Hub spot price by at least $0.65 to about $1.25 per MMBtu with differences growing in each successive month through March 2005. 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 strong.
Recent Natural Gas Market Data
Working gas in storage was 2,942 Bcf as of Friday, September 17, 2004, according to the EIA Weekly Natural Gas Storage Report. This is 188 Bcf, or about 6.8 percent, higher than the 5-year average for the report week (See Storage Figure). The implied net injection during the report week was 68 Bcf, which is about 17 percent below the 5-year average net addition of 82 Bcf for the week and 32 Bcf less than the injection of 100 Bcf reported for the same week last year. Cooling degree days were about 31 percent above average in the Lower 48 States during the week ended September 18. However during the shoulder season, moderate temperatures still prevail even with such large relative differences (See Temperature Map) (See Deviations Map). The production shut-ins owing to Hurricane Ivan were likely the principal factor that contributed to the below average level of net additions to natural gas storage. As of Friday, September 17, the cumulative shut-in total reached nearly 23 Bcf.
Other Market Trends:
Update on Impacts of Hurricane Ivan: The damage to oil and gas infrastructure in the Gulf of Mexico is still being evaluated as the industry tries to return to a normal level of production. Current reports show that few of the 4,000 platforms and 117 rigs operating in the Gulf sustained major damage. Most of the 25,000 to 30,000 workers involved in the production of offshore oil and natural gas are back at work. As of Wednesday, September 22, U.S. Minerals Management Service (MMS) reported that 2.4 billion cubic feet (Bcf) per day of natural gas and 578 thousand barrels of oil per day still remain shut in. (However, MMS did not include in these estimates the volumes lost owing to the destroyed rigs and platforms.) According to MMS, preliminary damage assessments reported by the industry as of Tuesday include 7 destroyed fixed platforms, 5 adrift Mobile Offshore Drilling Units (MODU), 4 platforms with extensive damage, and 13 pipeline leaks. While the shut-in volumes of gas and oil represent about 19 percent and 34 percent of daily GOM production, respectively, the volumes shut in have been significantly reduced since last Thursday, September 16, when 545 platforms and 69 rigs were evacuated and 6.5 Bcf of gas was shut in. The cumulative (9/13/04-9/22/04) shut-in production is 38.6 Bcf of gas and slightly more than 9 million barrels of oil.
EIA Releases an Advance Summary of Its 2003 Report on Crude Oil, Natural Gas and Natural Gas Liquids Reserves: The Energy Information Administration (EIA) released the Advance Summary: U.S. Crude Oil, Natural Gas, and Natural Gas Liquids Reserves 2003 Annual Report on September 22, 2004. The report presents key data tables on domestic proved reserves and some highlights of petroleum industry activity that affected oil and natural gas production and proved reserves in 2003. According to the report, proved natural gas reserves were up by 1 percent in 2003, continuing the 5-year trend of increasing natural gas reserves. While U.S. gas production remained about the same in 2003, reserves additions replaced 111 percent of 2003 gas production. Production declines in the Gulf of Mexico and New Mexico were offset by increases in the Rocky Mountain States and Texas. The Rocky Mountain States and Texas added large gas reserves in 2003, driven by continuing development of unconventional gas fields, such as fields developed in tight sands, shales, and coal beds. Coalbed methane reserves increased 1 percent from 18,491 billion cubic feet (Bcf) in 2002 to 18,743 (Bcf) in 2003, and accounted for 10 percent of U.S. dry gas proved reserves. Crude oil proved reserves declined by 3 percent, marking the first decline in 5 years, as operators replaced only 58 percent of oil production with reserves additions. The full report (to be published in November 2004) will contain more comprehensive data.
Natural gas prices increased across the board since last Wednesday, September 15, as Hurricane Ivan significantly reduced natural gas production in the Gulf of Mexico. Working gas in storage increased to 2,942 Bcf, which is about 7 percent above the 5-year average.
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