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Overview:  Thursday, December 30 (next release 2:00 p.m. on January 6)

Since Wednesday, December 22, natural gas spot prices have decreased sharply at virtually all market locations in the Lower 48 States. For the week (Wednesday-Wednesday), prices at the Henry Hub decreased 87 cents per MMBtu or about 12 percent to $6.18. Prices declined in each of the last three days of trading (December 27-29) as temperatures moderated following the coldest weather to date of the 2004-2005 heating season, which occurred during the holiday weekend. On Tuesday, December 28, the January futures contract at the New York Mercantile Exchange (NYMEX) ended its tenure as the near-month contract, settling at $6.213 per MMBtu. On its first day of trading as the near-month contract, the NYMEX futures contract for February delivery closed yesterday (Wednesday, December 29) at $6.402 per MMBtu, which was down roughly 45 cents or 6.5 percent lower than last Wednesday’s price. Natural gas in storage decreased to 2,849 Bcf as of December 24, which is 14.4 percent above the 5-year average. The spot price for West Texas Intermediate (WTI) crude oil declined $0.55 per barrel or about 1.2 percent since last Wednesday, falling to $43.69 per barrel or $7.53 per MMBtu. 





Although arctic temperatures briefly spurred price increases in trading before the holiday weekend, spot prices have fallen for the week in a range from $0.58 to $1.38 per MMBtu. Since last Wednesday, December 22, the price at the Henry Hub has fallen about 12 percent as moderate temperatures have returned throughout the East and storage supplies continue at well above average levels as the heating season progresses. The largest price declines during the week principally occurred in the Southwest, including select markets in West Texas, Arizona, and Nevada, where prices dropped between $1.01 and $1.26 per MMBtu. Declines in the Gulf of Mexico producing region generally were 80 cents per MMBtu or slightly higher, while in the Northeast declines were greater with most ranging between $0.90 and $1.07. At the New York citygate and the Algonquin citygate, which serves the New England area, prices were $6.82 and $6.88 MMBtu, respectively. Prices at these Northeast trading locations were more than 12 percent lower than last Wednesday as tight pipeline operating conditions loosened with the advance of warmer weather.  






At the NYMEX, the futures contracts for January delivery at the Henry Hub expired on Tuesday, December 28, at $6.213. The January contract price fell nearly 51 cents on Monday after traders returned from the holiday weekend to forecasts of a warming trend. During its tenure as the near-month contract (with its first day of trading on November 29), the January contract value decreased $1.624 or more than 20 percent. On the week, the price of the futures contract for delivery in February 2005 decreased 45 cents per MMBtu to a close of $6.402 per MMBtu. The 12-month strip, or the average price for contracts over the next year (February 2005 to January 2006), fell 19.2 cents per MMBtu to $6.479.


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. 



Working gas in underground storage decreased to 2,849 Bcf as of Friday, December 24, according to EIA’s Weekly Natural Gas Storage Report. Inventories now stand 14.4 percent, or 358 Bcf, above the 5-year average of 2,491 Bcf. (See Storage Figure).   This report marks the first time during this heating season (traditionally beginning November 1) that inventories have fallen below 3 trillion cubic feet, a level surpassed in the first week of December in each of the past two years. Despite the relatively large implied withdrawal of 178 Bcf, inventories are still 230 Bcf higher than last year’s level during the report week. The implied net withdrawal—the largest of the season to date—coincided with the coldest weather so far this heating season. (See Temperature Map) (See Deviations Map).  During the week ending December 25, the weather for the country as a whole was approximately 17 percent colder than normal, as measured by heating degree days (HDDs) published by the National Weather Service. HDDs were also 34 percent higher than last year, when the withdrawal for the report week was 80 Bcf. The Middle Atlantic experienced temperatures that were about 12 percent colder than normal and 31 percent colder than last year. In the East North Central region, which includes Chicago and other Midwest population centers, temperatures were 28 percent colder than normal, but 34 percent colder than last year.





Other Market Trends:

EIA Publishes the Natural Gas Annual 2003: The Energy Information Administration (EIA) published its Natural Gas Annual 2003 (NGA2003) on December 22, 2004, which provides comprehensive information on the supply and disposition of natural gas in the United States. According to the NGA2003, the national average natural gas wellhead price in 2003 was $4.88 per thousand cubic feet (Mcf), which is the highest annual wellhead price (based on 2003 constant dollars) in EIA’s historical data series. U.S. dry marketed production increased 0.6 percent to 19.0 trillion cubic feet (Tcf). Gross natural gas imports were less than in 2002 as imports declined from Canada sufficiently to offset gains in LNG imports. Natural gas consumption declined by more than 0.6 Tcf, reflecting the decline in current supply (production and imports) and the net additions to storage during the year.  The NGA2003 also includes data for production, transmission, storage, deliveries and price by State for 2003, as well as summary data for each State for 1999 through 2003.


FERC Issues Draft EIS for TX LNG Project and Approves Sabine Pass: The Federal Energy Regulatory Commission (FERC) issued a favorable draft environmental impact statement (EIS) for an ExxonMobil Corporation affiliate’s proposal to build a 1 billion cubic feet (Bcf) per day liquefied natural gas (LNG) terminal near Corpus Christi, Texas, and a 25-mile, 36-inch diameter gas pipeline. The $600 million terminal is expected to be operational by 2009. FERC also approved the construction of an LNG facility near Port Arthur, Texas, proposed by Sabine Pass LNG on December 15, 2004, along with a new 16-mile pipeline, which will connect the terminal to an existing pipeline. The Sabine LNG project is the largest-volume LNG facility ever authorized by the Commission, as it will receive, store, and vaporize an average of 2.6 Bcf per day of LNG. The approval of the Sabine LNG terminal marks the third recent permit for construction of a new LNG facility in the United States after Cameron LNG in September 2003 and Freeport LNG Development in June 2004.


MMS Updates Offshore Undiscovered Oil and Natural Gas Resource Estimates: The Minerals Management Service (MMS) has published the 2003 interim update for undiscovered technically recoverable resources in the Federal Outer Continental Shelf (OCS). According to the update, the MMS estimates that 76 billion barrels of oil and 406.1 trillion cubic feet of gas are technically recoverable from the U.S. Federal OCS. This assessment represents a 1 percent increase in oil resources and a 12.1 percent increase in gas resources when compared with the 2000 MMS estimate. About 91 percent of the increase in the natural gas estimate is due to new information obtained from recent exploration activities in the Gulf of Mexico. These findings represent the potential oil and gas that can be produced using current technology, which includes drilling in more than 10,000 feet of water and to depths in excess of 31,700 feet. MMS conducts a comprehensive national assessment of the undiscovered oil and gas resources on the OCS every five years. The last comprehensive national assessment was completed in 2000. Interim updates to these assessments are released in response to significant information obtained from new exploration and development activity, and to incorporate major improvements in methodology and modeling.



Moderating temperatures reduced natural gas demand in most parts of the country, contributing to significantly lower spot prices at market locations throughout the Lower 48.  Prices decreased at the NYMEX futures market from last week’s level as the January 2005 contract expired at $6.213 per MMBtu, and the February 2005 contract began its tenure by closing trading yesterday at $6.402. Working gas in storage decreased to 2,849 Bcf, which is 14.4 percent above the 5-year average.  


 Short-Term Energy Outlook