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Overview:† Thursday, September 30 (next release 2:00 p.m. on October 7)
Since Wednesday, September 22, natural gas spot prices have increased at virtually all market locations in the Lower 48 States, owing to the effects of Hurricane Ivan, climbing crude oil prices, and market expectations of an early arrival of winter.† For the week (Wednesday-Wednesday), prices at the Henry Hub increased 64 cents, or about 11 percent, to $6.23 per MMBtu.† Yesterday (September 29), the price of the NYMEX futures contract for November delivery at the Henry Hub settled at $6.911 per MMBtu, increasing roughly 67 cents or about 11 percent since last Wednesday (September 22).† Natural gas in storage was 3,011 Bcf as of September 24, which is 7 percent above the 5-year average.† The spot price for West Texas Intermediate (WTI) crude oil increased $1.12 per barrel, or about 2 percent, on the week to $49.53 per barrel or $8.54 per MMBtu.
Natural gas prices continued to surge in the wake of Hurricane Ivan for the second week in a row.† The persistence of shut-ins and greater-than-expected damage to natural gas infrastructure owing to Hurricane Ivan impeded restoring gas production in the Gulf of Mexico.† According to the Minerals Management Service (MMS), shut-ins remained at 2.3 Bcf per day as of Wednesday, September 29, down from 2.4 Bcf per day last Wednesday, September 22.† Some analysts speculate that it could take up to 2 months to restore production in the Gulf of Mexico to its former levels, contributing to the higher level of prices.† Climbing crude oil prices and weather forecasts released since last Wednesday, September 22, also may have contributed to the run-up in natural gas prices.† Natural gas spot price increases since last Wednesday were widespread, ranging between 25 and 76 cents per MMBtu or about 5 to 13 percent at most market locations.† Prices at the Henry Hub climbed 64 cents or about 11 percent for the week.† Increases exceeding 50 cents per MMBtu occurred at market locations in Texas, Louisiana, the Midcontinent, and the Northeast regions.† The largest price increase in the Lower 48 States occurred at the Florida Gas Zone 2 where prices climbed $1.35 per MMBtu since September 22 to $7.04 per MMBtu, an increase of nearly 24 percent.† Since Hurricane Ivan first posed a threat to the producing region in the Gulf of Mexico, prices rose from being slightly below last yearís levels at most market locations to exceeding last yearís levels by 20 to 40 percent.
At the NYMEX, the price of the futures contract for November delivery at the Henry Hub increased about 67 cents per MMBtu or nearly 11 percent since last Wednesday, September 22, to $6.911 per MMBtu. This is the highest settlement price for the November 2004 futures contract since May 27, 2004.† The futures contracts for delivery during the heating season months exhibited a similar upward trend, as prices climbed between 11 and 12 percent.† While the November 2004 contract is currently trading at a premium of about 68 cents per MMBtu to the Henry Hub spot price, futures contract prices for each month from December 2004 through March 2005 exceed the Henry Hub spot price by at least $0.65 to about $1.63 per MMBtu. 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.† The futures contract for October delivery closed on Tuesday, September 28, at $5.723 per MMBtu, increasing about 65 cents per MMBtu or 13 percent since August 31.
Recent Natural Gas Market Data
Working gas in storage was 3,011 Bcf as of Friday, September 24, 2004, according to the EIA Weekly Natural Gas Storage Report.† This is 183 Bcf, or about 6.5 percent, higher than the 5-year average for the report week. (See Storage Figure)† At 3,011 Bcf, working gas stocks are at their second-highest level for the report week in the 11-year history of the weekly natural gas storage database.† The implied net injection during the report week was 69 Bcf, which is about 7 percent below the 5-year average net addition of 74 Bcf for the week and 32 Bcf less than the injection of 101 Bcf reported for the same week last year.† This is the second week in a row that net additions to storage have been 32 Bcf below last yearís level of injections.† Cooling degree days were about 12 percent above average in the Lower 48 States during the week ended September 25. (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 24, the cumulative shut-in total reached more than 43 Bcf, increasing about 20 Bcf since the preceding Friday (September 17).
Other Market Trends:
Update on Impacts of Hurricane Ivan: As of September 29, the U.S. Minerals Management Service (MMS) reported that 2.3 billion cubic feet per day of natural gas and 485 thousand barrels per day of oil production in the Federal offshore areas of the Gulf of Mexico remain shut in. The current level of shut-ins is well below the peak of 6.5 billion cubic feet per day of gas and 1.3 million barrels per day of oil. The 2.3 billion cubic feet per day level has remained stable since Wednesday, September 22. The current amount of shut-in gas and oil production is equivalent to 19 percent and 29 percent of daily Federal offshore Gulf production, respectively. The cumulative (9/13/04-9/28/04) shut-in gas production is estimated at 55.5 billion cubic feet, while the cumulative shut-in oil production is estimated at about 12.4 million barrels. MMS reported that a total of 39 platforms were still evacuated as of September 29, which is down significantly from the high of 545 platforms. Shut-in production rates do not include production lost as a result of the destroyed platforms.†
EIA Releases Report on U.S. Natural Gas Pipeline and Storage Expansions: The Energy Information Administration (EIA) has published a report, U.S. Natural Gas Pipeline and Underground Storage Expansions in 2003, that examines natural gas pipeline and underground storage expansions in 2003. It also includes a discussion and comparative analysis of the recent level of growth in the two areas, as well as an examination of the amount of additional development proposed for completion over the next several years. Pipeline transportation and underground storage are crucial components of the U.S. natural gas system: the pipelines provide a link between production areas and the market place, while the underground storage facilities ensure the systemís capability to transport gas without interruption during high demand periods. According to the report, both natural gas pipeline and underground storage development decreased in 2003 compared with the 2002 levels, marking a 19 percent decrease in pipeline capacity additions and a 27 percent decrease in underground storage working gas capacity additions. In 2003, new and expanded underground gas storage fields added 18.6 Bcf of working gas capacity with daily peak withdrawal capability increasing by 2.0 Bcf per day, compared with an increase of 26 Bcf and 2.5 Bcf per day, respectively, in 2002. New pipeline development and expansions added about 2,200 miles of pipeline and 10.4 Bcf per day of natural gas pipeline capacity in 2003. However, the current inventory of new pipeline capacity expansion projects point to another drop of pipeline additions in 2004. At least 49 natural gas pipeline projects and 9 storage projects were completed during 2003.
Natural gas prices increased across the board since last Wednesday, September 22, as the recovery of natural gas production in the Gulf of Mexico in the aftermath of Hurricane Ivan continues. Working gas in storage increased to 3,011 Bcf, which is about 7 percent above the 5-year average.††
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