for week ending October 13, 2004 | Release date: October 14, 2004 | Previous weeks
Overview:
Thursday, October 14 (next release 2:00 p.m. on October 21)
Natural
gas spot prices and the near-month futures price showed a week-to-week decline
as the pace of storage injections indicate adequate supplies, despite continued
shut-in production in the Gulf of Mexico owing to Hurricane Ivan's impact. For
the week (Wednesday-Wednesday, October 6-13), the price at the Henry Hub
decreased 61 cents or about 10 percent to $5.39 per MMBtu.
Prices in production areas along the Gulf Coast and Texas generally fell
between 40 and 75 cents per MMBtu, while Midcontinent price declines were less than 36 cents per MMBtu. The price of the NYMEX futures contract for November
delivery ended the week at $6.851, a decline of roughly 19 cents per MMBtu or slightly more than 2.8 percent since last
Wednesday. Natural gas in storage increased to 3,159 Bcf
as of Friday, October 8, which is about 7.2 percent above the 5-year average.
The spot price for West Texas Intermediate (WTI) crude oil increased $1.88 per
barrel, or 3.6 percent, since last Wednesday to trade yesterday (October 13) at
$53.86 per barrel or $9.29 per MMBtu.
Perceptions
of adequate natural gas supplies this week outweighed higher petroleum prices
and continued losses in production from the Gulf of Mexico, resulting in
widespread price declines at spot trading locations in the Lower 48 States. The
damage from Hurricane Ivan continues to account for lost production of about
1.7 Bcf from the Gulf of Mexico (see Other Market Trends below). The Henry Hub price gained about 2
cents in trading yesterday (October 13) to $5.39 per MMBtu,
limiting the Wednesday-to-Wednesday net decline to 61 cents per MMBtu. Spot price decreases this week ranged down from
$1.02 in Zone 3 of Florida Gas Transmission (generally including the portion of
the pipeline running through Mississippi and Alabama) to as low as 11 cents per
MMBtu at Ventura, Iowa (off Northern Natural
pipeline). Price declines on the week were generally lowest in the Midcontinent area, where cooler temperatures contributed to
some weather-sensitive load. Light demand in the Northeast region also was
evident in announcements from Transco and other regional pipelines of high
storage inventories reducing operational flexibility. The price at delivery
points in New York off Transcontinental Gas Pipe Line (Transco) fell 59 cents
per MMBtu from a week ago to $5.72 in trading
yesterday. Prices in Northern California, which is experiencing seasonally
moderate weather, were significantly lower for the week. At the PG&E citygate, the price for next-day delivery dropped 87 cents
per MMBtu to $4.62.
At
the NYMEX, the futures contract for November delivery at the Henry Hub settled
yesterday at $6.851 per MMBtu, a decline in value of
19.4 cents on the week and a little more than 40 cents, or 5.6 percent, from
its high mark of $7.255 as the near-month contract on October 7. Owing at least
in part to perceptions of ample storage inventories and little weather
sensitive demand, price declines were greatest on Monday and Tuesday, during
which the near-month contract lost a combined 52.7 cents or about 7.4 percent
of its value. Although the near-month contract price fell, prices for peak
demand months this winter continued to increase. As the spot price for West
Texas Intermediate (WTI) crude oil increased $1.88 per barrel or 3.6 percent
since last Wednesday, the February 2005 contract gained 10.5 cents per MMBtu to a close of $8.469. The basis differential between
the Henry Hub spot price and the price of the futures contracts for delivery in
January and February 2005 now is over $3 per MMBtu.
As a result, the basis continues to provide suppliers an incentive to inject
gas into storage.
Recent Natural Gas
Market Data
Estimated Average Wellhead Prices |
||||||
|
Apr-04 |
May-04 |
Jun-04 |
Jul-04 |
Aug-04 |
Sept-04 |
Price ($ per Mcf) |
5.20 |
5.63 |
5.85 |
5.60 |
5.36 |
4.86 |
Price ($ per MMBtu) |
5.06 |
5.48 |
5.69 |
5.45 |
5.21 |
4.73 |
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 in storage was 3,159 Bcf as of Friday, October 8,
2004, according to the Energy Information Administration (EIA) Weekly
Natural Gas Storage Report. The reported working gas volumes for
the week include a reclassification of 7 Bcf from
working gas to base gas. The working gas
stock is 7.2 percent above the 5-year average of 2,948 Bcf
for the report week and about 5.8 percent more than last year's inventory level
of 2,981 Bcf for the same week. (See Storage Figure) The
implied net change in working gas inventories during the week was 67 Bcf. Although production
shut-ins owing to Hurricane Ivan likely hindered net additions to natural gas
storage, the lack of weather-related demand and large differentials between prices
for winter month futures contracts and spot transactions resulted in relatively
high injection activity during the week. Temperatures across most of the
country were seasonally moderate, according to the National Weather Service for
the week ended October 9. (See
Temperature Map) (See Deviations Map)
For the country as a whole, heating degree
days numbered 43, compared with a normal reading of 50 for the week and the 48 recorded
last year.
Other
Market Trends:
FERC Releases Report on Underground
Natural Gas Storage: The Federal Energy Regulatory Commission
(FERC) issued a report last week that examines the Nation's underground natural
gas storage capabilities. According to
the report, while there is enough natural gas in storage at present, there
could be problems later if new storage projects are not built and gas prices
continue to rise. An increase in gas storage capabilities could be the best way
to manage commodity price volatility and help customers maintain service
reliability. Further, certain areas such
as the Southwest and the Northeast are likely to have increased demand for
additional storage. A recent study by
the Natural Petroleum Council indicates there may be a need for 700 billion
cubic feet (Bcf) of new gas storage capacity in North
America by the year 2025, while an INGAA Foundation study estimates that 651 Bcf of new storage will be needed by 2020. According to the
FERC report, new storage development may be stalled by certain geologic,
political, economic, and environmental impacts.
Underground storage fields were designed to meet seasonal demands, but
today with the proliferation of gas fired electric plants, gas supply is
required on a more continual basis and not simply during the heating
season. The report said that FERC could
perhaps provide a boost to underground gas development through changes in its
regulatory policies. Some possible alternatives to consider would be various
cost-based rate options, market-based rate alternatives, and waivers or
exemptions of certain environmental review and certificate requirements,
affiliate rules, open access requirements for offering firm and interruptible
service and prohibitions against making bundled sales.
Update
on Impacts of Hurricane Ivan: As of
October 13, the U.S. Minerals Management Service (MMS) reported that 1.7
billion cubic feet (Bcf) per day of natural gas and
471 thousand barrels per day of oil production in the Federal offshore areas of
the Gulf of Mexico remain shut in, well below the peak of 6.5 Bcf per day and 1.3 million barrels of per day,
respectively. Reported natural gas production shut-ins have been about 1.7 Bcf per day since Tuesday, October 5. The current amount of
shut-in gas and oil production is equivalent to about 14 percent and a little
less than 28 percent of daily Federal offshore Gulf production, respectively.
The cumulative (9/13/04-10/13/04) shut-in gas production is estimated at 82.6 Bcf, while the cumulative shut-in oil production is
estimated at about 19 million barrels. MMS reported that a total of 9 platforms
and 1 rig were still evacuated as of October 13, 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 MMS estimates to be 9
million cubic feet per day.
Summary:
Since
Wednesday, October 6, natural gas spot prices at market locations in the Lower
48 States have generally dropped 20 to 80 cents per MMBtu.
The price for the near-month contract at the NYMEX also declined 19.4 cents to
$6.851 per MMBtu. Natural gas in storage increased to
3,159 Bcf as of Friday, October 8, which is about 7.2
percent above the 5-year average.