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Overview: Thursday, November 4 (next release 2:00 p.m. on November 10)
Since Wednesday, October 27, natural gas spot prices have decreased at virtually all market locations in the Lower 48 States. For the week (Wednesday-Wednesday), prices at the Henry Hub declined 86 cents, or about 11 percent, to $7.26 per MMBtu. Yesterday (November 3), the price of the NYMEX futures contract for December delivery at the Henry Hub settled at $8.752 per MMBtu, decreasing roughly 2 cents since last Wednesday (October 27). Natural gas in storage was 3,293 Bcf as of October 29, which is 7.8 percent above the 5-year average. The spot price for West Texas Intermediate (WTI) crude oil decreased $0.62 per barrel, or about 3 percent, on the week to $50.90 per barrel or $8.776 per MMBtu.
Moderate temperatures, falling crude oil prices, and a favorable supply situation led to widespread declines in natural gas spot prices in the Lower 48 States since last Wednesday, October 27. This follows two consecutive weeks characterized by significant and pervasive price increases. Shut-ins in the Gulf of Mexico owing to Hurricane Ivan continue, but are down to less than 0.8 Bcf per day, or about 6 percent of daily gas production in the Gulf of Mexico (See Other Market Trends). With warmer-than-normal temperatures prevailing throughout most of the Lower 48 States, prices fell more than 60 cents per MMBtu at most market locations. Price declines were steepest at most locations in Texas and in the Northeast region, where prices fell as much as 97 cents per MMBtu. With these declines, prices now stand at their lowest levels since early last month (October). However, prices overall continue to exceed last year’s levels by 65 to 80 percent at most market locations. As of November 3, 2004, prices at the Henry Hub were about 76 percent above last year’s level.
At the NYMEX, the price of the futures contract for December delivery at the Henry Hub decreased about 2 cents per MMBtu since last Wednesday, October 27, to $8.752 per MMBtu. Futures contract prices for each month from December 2004 through February 2005 exceed the Henry Hub spot price by at least $1.49 to about $2.20 per MMBtu, with differences growing in each successive month. With the futures strip through next winter trading at a significant premium to the Henry Hub spot price, economic incentives either to inject gas into storage or at least avoid use of gas from storage remain strong.
Recent Natural Gas Market Data
Working gas in storage was 3,293 Bcf as of Friday, October 29, 2004, according to the EIA Weekly Natural Gas Storage Report. This is 239 Bcf, or 7.8 percent, higher than the 5-year average for the report week.(See Storage Figure) Moreover, at 3,293 Bcf, working gas in storage is at the highest level ever recorded in the almost 11 years in the Weekly Natural Gas in Storage database. The implied net injection during the report week was 44 Bcf, which is more than three times larger than the 5-year average net addition of 14 Bcf for the week and 10 Bcf more than the injection of 34 Bcf reported for the same week last year. The larger-than-normal net additions were aided by heating degree days that were about 30 percent below average in the Lower 48 States during the week ended October 30. (See Temperature Map) (See Deviations Map)
Other Market Trends:
Update on Impacts of Hurricane Ivan: As of November 3, the U.S. Minerals Management Service (MMS) reported that 746 million cubic feet (MMcf) per day of natural gas and 215 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 below 1 Bcf per day since Monday, November 1. The cumulative (9/13/04-11/02/04) shut-in gas production is estimated at about 111.8 Bcf, while the cumulative shut-in oil production is estimated at about 27 million barrels. MMS reported that nine platforms and one rig were still evacuated as of November 2. Shut-in production rates do not include production lost due to the destroyed platforms, which has been reported as 9 MMcf/d and 3,100 barrels per day.
Status Update for LNG Projects: Currently, applications for more than 20 proposed LNG facilities are before regulatory authorities (either as formal applications or under the Federal Energy Regulatory Commission’s informal pre-filing procedures). The CEO of the Freeport LNG project reported that the plant expects to receive final permits and award engineering, procurement, and construction contracts before the end of 2004. Located on Quintana Island in Freeport, Texas, the facility is designed with a storage capacity of 6.9 Bcf and a send-out rate of 1.5 Bcf per day and is scheduled to start operating in the second half of 2007. Construction is underway on Anadarko Petroleum Corporation’s LNG receiving terminal at Bear Head on Cape Breton Island in Nova Scotia. The $450 million project is planned for a sendout capacity of 1 Bcf per day and is projected to start operating by November 2007. Sempra Energy received the final local permit from the city of Ensenada, allowing the company to start planning the construction of its Costa Azul LNG receiving terminal along the Pacific Coast of North Baja, Mexico. The $600 million facility would process up to 1 Bcf per day of gas. ExxonMobil Corporation has canceled its liquefied natural gas (LNG) import terminal planned for Mobile Bay, Alabama. Local opposition contributed to ExxonMobil’s decision to give up the $600 million LNG plant, which was planned to be a 1 Bcf per day facility. ChevronTexaco announced that it has halted the construction of its Port Pelican project located in the Gulf of Mexico, 40 miles off the coast of Louisiana, citing the inability to acquire supplies as one of the reasons for the delay.
Natural gas prices declined across the board since last Wednesday, October 27, although they remain at unusually high levels. Working gas in storage increased to 3,293 Bcf, which is about 8 percent above the 5-year average and the highest level since October 1991.
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