for week ending October 27, 2004 | Release date: October 28, 2004 | Previous weeks
Overview:
Thursday, October 28 (next release 2:00 p.m. on November 4)
Natural
gas spot prices spiked significantly higher for the second consecutive week, while
futures prices for delivery months beyond November saw smaller, yet still
substantial, increases. The November
contract expired yesterday (Wednesday, October 27) at nearly the identical
price of last Wednesday's settlement, up $0.003 on the week (Wednesday to
Wednesday, October 21-28) to end trading at $7.626 per MMBtu. Taking over as the
near-month contract, the NYMEX futures contract for December delivery settled
yesterday at $8.775 per MMBtu, an increase of $0.235
per MMBtu, or almost 3 percent, since last Wednesday. The price for spot gas at the Henry Hub
jumped $0.87 per MMBtu on the week, an increase of 12
percent, as spot gas traded yesterday at $8.12, topping $8 for the first time
since early March 2003. Working gas
inventories were 3,249 Bcf as of Friday, October 22,
which is 6.9 percent greater than the 5-year average. The spot price for West Texas Intermediate
crude oil reached a record-high $56.37 per barrel ($9.72 per MMBtu) on Tuesday (October 26), only to drop in yesterday's
trading on news that last week's crude oil stocks build was about double the
market's expectations. WTI ended trading
yesterday at $52.52 per barrel ($9.06 per MMBtu),
down $2.41 per barrel ($0.42 per MMBtu), or over 4
percent, from last Wednesday's level.
In a week that featured seasonal temperatures in
most high-gas consuming areas of the nation, spot prices spiked higher on
Monday and Wednesday (October 25 and 27).
There appears to be no dominant factor driving the price increases. Temperatures are typical for this time of
year, shut-ins owing to Hurricane Ivan continue but are down to 1.3 Bcf per day, and there have been no major disruptions of
supplies either in the production fields or along the distribution system. For the week, spot price increases were
pervasive, ranging from around 60 cents to nearly $2.00 per MMBtu. By yesterday, spot prices exceeded $8 per MMBtu at nearly half of 87 trading locations throughout the
country, including every Northeast market.
In the Midwest, only the Chicago citygate
price, at $7.98, was under $8 per MMBtu. Meanwhile, cooler temperatures in the Pacific
Northwest and the Rocky Mountains during the week provided some additional
support to prices in Western points.
Price increases in these market areas were the largest percentage-wise,
with increases in West Texas, California, and the Rockies ranging from 16 to
more than 21 percent. Unseasonably hot
temperatures primarily in southern Texas resulted in some significant space
cooling demand and the highest weekly price increase—both absolute and
percentage-wise—in the nation: the spot
price for gas at TRANSCO's Station 30 in Southeast
Texas increased $1.77 per MMBtu, or 28.1 percent, to $8.07.
The recent volatility in futures prices continued,
as daily price changes for the near-month contract (for November delivery)
settlement price ranged between declines of nearly 80 cents per MMBtu and increases of more than 50 cents. On balance, however, the price gains roughly
offset the declines, so the expiring November contract had a net increase on
the week of just $0.003 per MMBtu, ending trading
yesterday at $7.626. Since becoming the
near-month contract on September 29, the November contract gained over 10
percent in value. On the other hand,
prices for contracts for delivery through the end of the upcoming heating
season showed strong increases on the week ranging from December's $0.235 per MMBtu to February's $0.487, leaving it with the
highest-priced gas of the winter as of yesterday at $9.47 per MMBtu. Natural gas
futures price movements continue to mirror movements in crude futures
prices. In a speech delivered on Friday
(October 22), Federal Reserve Board Governor Ben S. Bernanke
noted that prevailing crude oil futures prices indicate that the current
expectation is for a long-run oil price of about $39 per barrel, contrasted
with about $20 per barrel throughout most of the 1990s. As of yesterday, natural gas futures prices
exceeded $7 per MMBtu through March 2006, and were
over $6 through April 2007.
Recent Natural Gas
Market Data
Estimated Average Wellhead Prices |
||||||
|
Apr-04 |
May-04 |
Jun-04 |
Jul-04 |
Aug-04 |
Sept-04 |
Price
($ 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. |
Natural
gas in storage stood at 3,249 Bcf as of Friday,
October 22, an increase of 26 Bcf over the level of
the previous Friday, according to EIA's Weekly Natural Gas Storage Report. (See
Storage Figure) This is only 5 Bcf
lower than the highest weekly inventory measurement (on Friday, November 30,
2001) in the 11-year weekly database. (EIA's all-time high inventory level,
according to its monthly survey of all storage operators, is 3,472 Bcf as of November 30, 1990.) As of October 22, stocks exceeded last year's
levels by 128 Bcf and the previous 5-year (1999-2003)
average by 210 Bcf.
The implied net injection of 26 Bcf is about
30 percent less than the 5-year average for the week. During the report week, cooler-than-normal
temperatures in the New England, Middle Atlantic, and Pacific Census divisions
plus significantly higher-than-normal temperatures in the East and West South
Central Census divisions contributed to some temperature-driven swing demand See Temperature Map)
(See Deviations Map),
diverting supplies that might otherwise have been injected into storage. Also, the continuation of some shut-in
production from the Gulf of Mexico caused by Hurricane Ivan reduced supplies
for the week by around 10.5 Bcf.
Other
Market Trends:
High Natural
Gas Prices and High Storage Volumes: The high natural gas inventories in recent
weeks have been achieved by relatively high injection volumes. This use of current gas supplies competes
with the current consumption needs of residential, commercial, industrial, and
electric generation customers. The
higher overall demand for gas now and expectations about future demand have
contributed to the higher natural gas prices.
The high natural gas injections have been encouraged by the relative
prices on the spot and futures markets.
For example, based on Friday's (October 22) prices, an operator could
acquire natural gas at $7.12 per MMBtu at the Henry
Hub spot market, which could be sold for January delivery on the NYMEX at
$9.435 per MMBtu.
The differential of $2.32 per MMBtu would be
more than sufficient to cover costs of storage.
(Based on historical data, the differential between spot prices in the
summer months and the contemporaneous NYMEX prices for delivery in the
succeeding winter months typically does not exceed 70 cents, and often is less.) The natural gas now in storage is expected to
provide some relief from potential price spikes during the winter. Working gas in storage as of October 22,
2004, was 3,249 billion cubic feet (Bcf). With 9 more days left in the traditional
refill season, the stock at the end of this month is likely to be the largest
storage volume since October 1991 when 3,369 Bcf was
reported.
Energy
Tax Credits Signed into Law: On Friday, October 22, President Bush signed
a $136 billion corporate tax cut bill into law, providing tax incentives and
credits for natural gas, electricity, renewable energy, and other fuels. Tax
credits related to the Alaska gas pipeline project complement the legislation
previously passed by Congress awarding $18 billion in Federal loan guarantees
for the construction of a natural gas pipeline, which is to be built between
the North Slope and the Lower 48 States. The bill includes natural gas related
provisions such as the call for a 7-year depreciation for certain Alaska
pipeline property placed into service after 2013, an extension of the oil
recovery credit to Alaskan gas treatment plants, and a tax credit for marginal
oil and gas wells when energy prices drop to low levels. Marginal oil wells and
natural gas wells have an average daily production rate of no more than 15
barrels and 90 thousand cubic feet (Mcf)
respectively. The bill allows a $3 per barrel tax credit for the first three
barrels of daily production from an existing oil well, and a $0.50 per Mcf credit for the first 18 Mcf
of gas production from a marginal gas well when prices drop below a certain
level. There are more than 400,000 marginal oil wells and 250,000 marginal gas
wells in the United States, which provide approximately 25 percent of the
nation's oil and 10 percent of its natural gas.
Natural Gas Rig Counts Remain Near Record Levels: The natural gas rig count was 1,071 for the
week ended October 22, according to Baker-Hughes Incorporated. The number of natural gas rigs running is 13
percent greater than last year at this time and about 20 percent greater than
the 5-year average for the report week.
The incremental change in gas rigs from the prior week was 1.3
percent. Rigs drilling gas prospects
made up 86 percent of the United States total rigs running as of the week ended
October 22. Natural gas rotary rigs
reached an all-time high of 1,082 during the week ended September 3, 2004,
surpassing the previous record of 1,068 recorded for the week ended July 13,
2001. Unlike in 2001, when gas rigs
exceeded 1,000 for 3 months beginning in May, natural gas rigs surpassed 1,000
in May 2004 and have remained above that level for the 6 months since.
Summary:
Spot prices surged upward for a second consecutive
week, topping $8 at many market locations.
Futures prices for winter months and beyond continued their impressive
week-to-week climb for a sixth straight week, as gas for delivery in the first
3 months of 2005 fetched $9 or higher.
Working gas in storage continued to increase, and, at 3,249 Bcf as of October 22, reached its third highest level over
nearly 11 years of weekly data.