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Overview:  Thursday, October 7 (next release 2:00 p.m. on October 14)

Natural gas spot and futures prices generally moved in opposite directions for the week (Wednesday to Wednesday, September 29-October 6), as spot prices fell at most market locations, while futures prices continued to climb higher.  In yesterday’s (Wednesday, October 6) trading at the Henry Hub, the spot price for natural gas averaged $6.00 per MMBtu, down 23 cents per MMBtu, or close to 4 percent, from the previous Wednesday.  On the New York Mercantile Exchange (NYMEX), the futures contract for November delivery gained $0.134 per MMBtu on the week, or about 2 percent, as it settled yesterday at $7.045.  Settlement prices for contracts for gas delivery in December 2004 through March 2005 rose much more sharply, with increases ranging from just over 40 cents to nearly 60 cents per MMBtu.  EIA reported that inventories were 3,092 Bcf as of Friday, October 1, which is 6.9 percent greater than the previous 5-year average for the week.  The spot price for West Texas Intermediate crude oil rose $2.45 per barrel (42 cents per MMBtu) on the week, or about 5 percent, to yesterday’s record-high price of $51.98 per barrel ($8.96 per MMBtu).  



The upward price trend that closed out the previous week (Wednesday to Wednesday, September 22-29) was abruptly reversed to begin the past week.  Spot prices declined on the week mostly in the range of a dime to 35 cents per MMBtu.  Significant price drops experienced in all regional markets on Thursday (September 30) became more widespread and severe on Friday, as prices fell that day by over $1 per MMBtu at more than one-third of the reported price locations.  Cumulative two-day declines ranged from nearly 70 cents to almost $2 per MMBtu, influenced by mild weather and the impending drop in industrial load over the weekend, as well as the easing of futures prices.  Spot prices revived strongly on Monday and continued to rally on Tuesday, as a modicum of heating load from a weak and short-lived cold front was generated in parts of the Midwest and Midcontinent beginning over the weekend.  The market felt some additional upward price pressure from production shut-ins that lingered into a third week (see Other Market Trends below), as well as from rising crude oil prices.  Prices fell again yesterday (Wednesday, October 6) as a warming trend began in the eastern half of the nation.  For the week, the spot price for Florida Gas Zone 2 showed the largest drop in the nation, at $1.07 per MMBtu, reflecting in part the loss of demand from extensive power outages in Florida wrought by Ivan.  Weekly price declines in the consuming regions of the Northeast and Midwest averaged 23 and 35 cents, respectively.  Rising heat in the desert Southwest prompted weekly price increases of under a dime at just three pricing locations that serve southern California.   



A one-day increase in the price of the near-month futures contract (for November delivery) on the NYMEX overshadowed four trading days of moderate losses, pushing the November contract up by $0.134 per MMBtu, or just under 2 percent, over its level of the previous Wednesday (September 29), as it settled yesterday at $7.045.  The high for the past week occurred on Tuesday (October 5) when prices increased $0.439 per MMBtu to $7.164 per MMBtu, coinciding with the November crude oil futures contract’s jump of $1.18 per barrel to a (then) record high settlement price of $51.09 per barrel.  The November contract thus became the first near-month contract to settle above $7 on consecutive days since natural gas futures trading began in 1990.  Price patterns for contracts for the balance of the heating season (December 2004-April 2005) differed from November, rising on three of five trading days and settling two days in a row above $8 per MMBtu.  Concerns about market prices or supplies in the coming winter kept the differential between the price for gas for delivery in December-March and the Henry Hub spot price over $2 per MMBtu.  This continues to provide significant economic incentive to inject gas into storage, even as storage levels continue to be quite high historically.


Recent Natural Gas Market Data


Estimated Average Wellhead Prices








Price ($ per Mcf)







Price ($ per MMBtu)







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. 



Natural gas stocks stood at 3,092 Bcf as of Friday, October 1, according to EIA’s Weekly Natural Gas Storage Report.  The implied net injection for the week of 81 Bcf exceeded the previous 5-year (1999-2003) average by nearly 27 percent, leaving inventories 188 Bcf larger than at this point last year, and 200 Bcf more than the previous 5-year average (See Storage Figure).  Although the rate of net injections declined during late September, net additions to storage during September were an estimated 340 Bcf, which compares favorably with the prior 5-year average for the month (according to EIA’s monthly storage data series) of 331 Bcf.  Generally mild temperatures throughout the nation (See Temperature Map) resulted in little demand for space heating or cooling, allowing significant injections despite the second full week of production shut-ins in the Gulf of Mexico as a result of Hurricane Ivan (see Other Market Trends, below for further details).  Although some regions of the country experienced higher-than-normal heating- or cooling-degree days (See Deviations Map), cooling degree days were less than 10 percent greater than normal for the nation as a whole, and heating degree days were more than 39 percent below normal.  For the most part, mild temperatures have prevailed throughout the summer and thus far in the fall, facilitating a strong stock build right through September. 



Other Market Trends:

EIA Releases October Winter Fuels Outlook: 2004-2005: The Energy Information Administration (EIA) has published its Winter Fuels Outlook: 2004-2005, which summarizes the likely demand, supply, and prices for natural gas, heating oil, propane, and electricity during the upcoming winter (October 2004 – March 2005). According to the report, average residential natural gas prices are expected to be 11 percent higher than they were last winter, and household expenditures are expected to be 15 percent higher. Natural gas prices weakened in August as cooling demand levels remained well below normal. However, natural gas prices (spot and futures) increased in the second half of September owing at least in part to the natural gas production losses in the Gulf of Mexico caused by Hurricane Ivan. The reduction in natural gas production resulting from the hurricanes in September lowered the storage injection rate in the latter half of the month; however stocks remain well above the 5-year average.  With ongoing high levels of natural gas wells drilled in North America, 2005 domestic production is projected to grow by 1.4 percent. Steady increases in liquefied natural gas imports and limited export growth are expected to contribute to moderate improvement in the supply picture through 2005.


MMS Releases a Fact Book on Current OCS Infrastructure in the Gulf of Mexico.  The Minerals Management Service (MMS) released on September 27th a report on oil and gas-related infrastructure and how it supports offshore activities.  The OCS-Related Infrastructure in the Gulf of Mexico Fact Book (OCS Study MMS 2004-027) includes data collected in 2000 and 2001 and examines historic information for past and future trends in the construction, use, and retirement of infrastructure related to operations on the Outer Continental Shelf (OCS).  For over 100 years, oil and gas exploration and production have occurred in the states that border the Gulf of Mexico, and for the past 50 years offshore activity has occurred in coastal waters and on the OCS.   During this time many facilities have been developed to support offshore production.  In this study 11 major infrastructure categories are identified and described, such as platform fabrication yards, port facilities, shipyards and ship building yards, pipelines, natural gas processing facilities, natural gas storage facilities, refineries, and petrochemical facilities. The fact book discusses each of these infrastructure areas and its relationship to offshore oil and gas activities.


Update on Impacts of Hurricane Ivan: As of October 6, the U.S. Minerals Management Service (MMS) reported that 1.8 billion cubic feet per day of natural gas and 478 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 current amount of shut-in gas and oil production is equivalent to 14 percent and 28 percent of daily Federal offshore Gulf production, respectively. The cumulative (9/13/04-10/06/04) shut-in gas production is estimated at 70.5 billion cubic feet, while the cumulative shut-in oil production is estimated at about 16 million barrels. MMS reported that a total of 9 platforms and 2 rigs were still evacuated as of October 6, which is down significantly from the high of 545 platforms. Shut-in production rates do not include production lost due to the destroyed platforms, which recently has been estimated by MMS to be 9 million cubic feet per day.


Spot prices displayed significant daily variability on their way to an overall decline for the week, as a general lack of weather-related demand and relatively high inventories offset the influence of production shut-ins and price increases in the crude oil market.  Conversely, natural gas futures prices increased significantly for the third week in a row.  Despite a slight slowing of the stock build for several weeks in September, the month ended with a week of higher-than-average implied net injections, closing out with cumulative storage additions for the month that exceeded the previous 5-year average.


 Short-Term Energy Outlook