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Overview: Thursday, December 16 (next release 2:00 p.m. on December 30)
A drop in temperatures in the eastern half of the nation beginning this past Monday (December 13) helped push natural gas spot prices up sharply on the week (Wednesday to Wednesday, December 8-15). Futures prices rose by smaller, but still significant, amounts. The spot price at the Henry Hub increased by $1.06 per MMBtu, or nearly 18 percent, for the week, to $7.04 in yesterday’s (Wednesday, December 15) trading. On the New York Mercantile Exchange (NYMEX), the futures contract for January delivery added 55.3 cents to its settlement price of one week ago, settling yesterday at $7.236 per MMBtu. The Energy Information Administration (EIA) reported that inventories were 3,150 Bcf as of Friday, December 10, which is 14.3 percent greater than the previous 5-year average. The spot price for West Texas Intermediate (WTI) crude oil surged upward by $2.45 per barrel in yesterday’s trading, bringing the WTI spot price to $44.21 per barrel ($7.62 per MMBtu). The WTI spot price gained $2.25 per barrel ($0.39 per MMBtu), an increase of more than 5 percent.
A large mass of frigid air dipped into the country just west of the Great Lakes region beginning Monday (December 13) and rapidly spread east and south, bringing significantly colder temperatures to much of the East, the Gulf Coast, and most of Texas. The result was sharply rising spot prices, as week-on-week increases ranged from around 45 cents to well over $1 per MMBtu at nearly all market locations. The largest increases were seen on Monday, mostly in the range of 35 cents to slightly more than $1. The strong heating load in Florida and along the Gulf Coast prompted an Operational Flow Order (OFO) on Southern Natural Gas pipeline on Monday, followed by similar restrictions on the Florida Gas Transmission system on Tuesday. The significant week-on-week price increases materialized despite yesterday’s falling prices, ranging mostly from a few pennies to around 30 cents per MMBtu. The largest week-on-week price increases were seen in the Alabama/Mississippi market area, where prices increased $1.13 per MMBtu on average to $7.26. Louisiana and Gulf points were not far behind, with increases ranging from $1.01 to $1.29 for an average increase of $1.10 per MMBtu. In the Northeast, the average spot price increased by $1.11 per MMBtu. The spot price for delivery to New York citygates off TRANSCO Zone 6 recorded the highest weekly increase in the nation, surging $1.41 per MMBtu to $8.03. Price increases tended to be somewhat smaller in Midwest and Midcontinent market locations, ranging mostly from around 75 cents to nearly 90 cents per MMBtu. The Chicago citygate price increased $0.86 on the week, averaging $6.96 in yesterday’s trading. The smallest price increases were seen in the West, where temperatures along the coast and in the Rockies mainly have been above normal for at least a week.
On the NYMEX, settlement prices of the futures contracts for delivery for the rest of the heating season (January through March) increased on the week by more than 50 cents, while prices for out months through the next heating season increased from nearly 31 to nearly 36 cents per MMBtu. Mirroring upswings in spot prices on Monday and Tuesday, the near-month contract (for January delivery) added $0.553 in value over its settlement price of the previous Wednesday (December 8), as it settled yesterday at $7.236 per MMBtu. The February and March contracts rose $0.542 and $0.544 on the week, respectively, to settlements yesterday of $7.370 and $7.297 per MMBtu. While both spot and futures prices increased on the week, spot price increases were larger, further reducing the futures prices’ bases to the Henry Hub spot price. The basis for the respective heating season months’ contracts fell from the 70 to 80-plus cent range last Wednesday (December 8) to the 20 to 30-plus cent range as of the end of trading yesterday. As the relative prices change, the economic incentives to retain gas in storage are diminishing.
Recent Natural Gas Market Data
Working gas inventories stood at 3,150 Bcf as of Friday, December 10, according to the EIA’s Weekly Natural Gas Storage Report. This is 14.3 percent greater than the previous 5-year (1999-2003) average (See Storage Figure). The implied net withdrawal of 61 Bcf is 50 Bcf, or 45 percent, less than the 5-year average for the week, increasing the surplus with respect to the average inventory level to 394 Bcf. The surplus with respect to last year’s storage level increased by 73 Bcf, to 300 Bcf. The surplus to 5-year average levels increased by over 2 percentage points in the East region, and by over 3 percentage points in the Producing region. The unusually warm temperatures that prevailed over nearly the entire country during the week covered by this report suppressed space-heating demand and contributed to the relatively small (fourth smallest over the 11 observations for this week of the year) net decrease in inventories (See Temperature Map) (See Deviations Map). According to the latest National Weather Service data for the week ended Saturday, December 11, temperatures nationwide were more than 24 percent above normal, as measured by gas-customer weighted heating degree days (HDD). The warm temperatures were widespread, as evidenced by HDDs that were lower than normal by double-digit percentage amounts in all nine of the Census divisions comprising the Lower 48 States.
Other Market Trends:
New Tank Added to Cove Point LNG Terminal: Dominion has completed an expansion of its Cove Point, MD, liquefied natural gas (LNG) import terminal, with the addition of a fifth storage tank, recently placed in service. The expansion project began in 2003 and was completed three months earlier than expected. The new tank increases the facility’s on-site-storage capacity from 5 Bcf to 7.8 Bcf of natural gas. The extra storage will give shippers additional flexibility necessary to provide natural gas to the Mid-Atlantic and the Northeast all year round. Dominion has proposed an additional expansion to this facility in the year 2008, which would increase the storage capacity from 7.8 Bcf to 14.6 Bcf, and the peak sendout capacity from 1.0 to 1.8 Bcf per day.
Natural gas spot prices rose sharply and futures prices recorded smaller but significant increases as the first true cold snap of the heating season gripped most of the nation east of the Mississippi River. Decreasing bases of winter-month futures prices to spot prices are lessening economic incentives to retain gas in storage. Meanwhile, according to EIA’s latest weekly storage report, the surplus of working gas in storage with respect to both last year and the 5-year average increased substantially.
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