Natural Gas

Overview: Friday, January 21 (next release 2:00 p.m. on January 27)

Since Wednesday, January 12, natural gas spot prices have increased at most market locations in the Lower 48 States. During the period since Wednesday, January 12, prices at the Henry Hub climbed 37 cents, or about 6 percent, to $6.26 per MMBtu. Yesterday (January 20), the price of the NYMEX futures contract for February delivery at the Henry Hub settled at $6.308 per MMBtu, decreasing roughly 37 cents since last Wednesday (January 12). Natural gas in storage was 2,500 Bcf as of January 14, which is about 16 percent above the 5-year average. The spot price for West Texas Intermediate (WTI) crude oil increased $0.55 per barrel, or about 1 percent, on the week to $47.01 per barrel or $8.105 per MMBtu.

Prices:

At the NYMEX, the price of the futures contract for February delivery at the Henry Hub increased about 37 cents per MMBtu since last Wednesday, January 12, to $6.308 per MMBtu. Similarly, prices for the futures contracts for the March 2005 contract increased about 5 percent during the same period to $6.354 per MMBtu. Futures contract prices for February 2005 and March 2005 are less than 10 cents above the Henry Hub spot price, indicating that suppliers have reduced economic incentives to hold working gas in storage.

Recent Natural Gas Market Data

Storage:

Working gas in storage was an estimated 2,500 Bcf or 16.0 percent above the 5-year average as of Friday, January 14, 2005, according to the EIA Weekly Natural Gas Storage Report. (See Storage Figure) Stock levels exceeded the year-ago levels by 197 Bcf, or 8.6 percent. The implied net withdrawal during the week was 110 Bcf, or about 17 percent less than the previous 5-year average withdrawal of 133 Bcf. Warmer-than-normal temperatures across much of the Lower 48 States likely contributed to the relatively low net withdrawals of natural gas from storage. According to the latest data from the National Weather Service, gas-customer weighted heating degree days (HDD) were less than normal for the week ending January 15. The weather was 19 percent warmer than normal for the United States as a whole, and the Mid-Atlantic region was about 25 percent warmer than normal. The East North Central region, which includes Chicago, was 20 percent warmer than normal. New England was about 21 percent warmer than normal and the Mountain Census Division experienced 6 percent warmer than normal weather. (See Temperature Map) (See Deviations Map).

Other Market Trends:

Recent LNG Developments: ConocoPhillips has submitted a proposal to the U.S. Coast Guard for a building permit for the Beacon Port Clean Energy Terminal in Federal waters, 56 miles south of Louisiana. The new terminal in the Gulf of Mexico would have a throughput capacity of 1.5 Bcf per day. Construction could begin as soon as 2006 and the terminal is expected to be ready to accept deliveries in 2010. A total of five U.S. LNG import terminals with 7.7 Bcf per day of proposed peak sendout capacity have been approved for construction along the Gulf Coast or in the Federal offshore Gulf of Mexico, and at least ten other terminals have been proposed for the Gulf, totaling at least 16 Bcf per day of sendout capacity. Additionally, Kinder Morgan Energy Partners is holding an open season to determine existing interest in a new pipeline project along the Gulf Coast. The 77-mile pipeline would transport regasified LNG from existing and proposed LNG terminals along the coasts of Texas and Louisiana. In addition to an existing 30-inch diameter pipeline, another 23 miles of new pipeline would be built at a cost of $89 million. The pipeline could become operational in 2009 and would be capable of transporting 1 Bcf per day of gas. The pipeline would originate near Sabine Pass, Texas, and would run south of Lake Arthur in Louisiana.

Update on Continuing Impacts of Hurricane Ivan: Four months after hurricane Ivan caused a disruption of Gulf of Mexico gas and oil production, production shut-ins remain at several platforms. As of January 18, the U.S. Minerals Management Service (MMS) reported that 559 million cubic feet (MMcf) per day of natural gas and 141 thousand barrels per day of oil production in the Federal offshore areas of the Gulf of Mexico still remain shut in. The current amount of shut-in gas and oil production is equivalent to about 5 percent and slightly more than 8 percent of daily Federal offshore Gulf production, respectively. The cumulative (9/11/04-01/18/05) shut-in gas production is estimated at 159 billion cubic feet, while the cumulative shut-in oil production is estimated at about 40 million barrels. MMS reported that a total of 9 platforms and 1 rig were still evacuated as of January 18. Shut-in production rates do not include production lost owing to the destroyed platforms, which was estimated at 9 MMcf per day of natural gas and 3,100 barrels per day of crude oil.

Summary:

Natural gas prices increased at most market locations east of the Rockies since last Wednesday, January 12, as a strong cold front moved into the northern portion of the region. Working gas in storage declined to 2,500 Bcf, which is about 16 percent above the 5-year average.

Short-Term Energy Outlook