Natural Gas

Overview: Thursday, March 10 (next release 2:00 p.m. on March 17)

Natural gas spot prices increased this week (Wednesday to Wednesday, March 2-9) as a late season cold front moved into major gas-consuming regions of the country, bringing a reminder that the end of winter is still two weeks away. Spot prices climbed 17 to 76 cents per MMBtu at trading locations in the Lower 48 States since last Wednesday. Price changes in the Northeast were at the higher end of the range, while trading in the West resulted in gains at the lower end. The Henry Hub spot price increased 38 cents per MMBtu, or 5.7 percent, to $6.99. At the New York Mercantile Exchange (NYMEX), the futures contract for April delivery gained 16.3 cents per MMBtu, settling at $6.880 on Wednesday, March 9. Natural gas in storage as of Friday, March 4, decreased to 1,474 Bcf, which is 25.7 percent above the 5-year (2000-2004) average. The spot price for West Texas Intermediate (WTI) crude oil traded at near-record highs, rising $1.75 per barrel on the week to yesterday's closing price of $54.75 per barrel, or $9.44 per MMBtu.

 

Prices:

Spot prices remained strong throughout the country as temperatures below normal for this time of year moved into major gas-consuming centers in the Northeast and Midwest, boosting space-heating demand. The spot price at the Henry Hub declined 20 cents per MMBtu on Friday (March 4) last week, but price increases in the ensuing three days resulted in a net increase of 38 cents on the week. The Henry Hub price averaged $6.99 per MMBtu yesterday (March 9), which is the highest recorded price at that market this year. Elsewhere in the Gulf producing region, gains were generally about 30 to 40 cents per MMBtu. A force majeure declared by Tennessee Gas Pipeline on Tuesday for receipts on its Blue Water System offshore Louisiana appeared to have little impact on prices. Tennessee called the force majeure, which could have affected up to 40,000 MMBtu per day, after discovering a leak on the system. However, Tennessee had isolated the problem by Wednesday, and all but one meter is currently flowing gas. On the week, the average price for Northeast trading locations increased about 55 cents to $8.09 per MMBtu, as pipeline conditions in the region became constrained owing to increased demand. The price off Algonquin Gas Transmission, which serves much of New England, finished the week at $8.63 per MMBtu, or 70 cents higher than last Wednesday. In contrast to the wintry conditions in the East, market centers located in the Rockies and California experienced mild temperatures over much of the region. On the week, the price at the Opal, Wyoming, trading point increased 29 cents per MMBtu to $6.22.

 

NYMEX futures settlement prices similarly registered gains on the week with the return of cold temperatures and indications that the current weather pattern will continue through the next week. The futures contract for April delivery increased 16.3 cents, or 2.4 percent, to a close of $6.880 yesterday. At its closing price on Wednesday, the April contract price is the highest price for a near-month contract since the December 21, 2004, close of the January 2005 contract. On the week, the May contract registered a slightly higher increase of 18.1 cents, ending trading yesterday at $6.993. The prices of futures contracts successively increase through the January 2006 contract, which ended trading yesterday at $8.231 per MMBtu. For contracts for the next 12 months, those for next winter's (2005/2006) months registered the highest increases on the week, including a 26.5-cent per MMBtu increase for the March 2006 contract. The 12-month strip, which is an average of the monthly futures prices for the coming year, settled at $7.484 per MMBtu, or almost 22 cents higher on the week.

Recent Natural Gas Market Data

Estimated Average Wellhead Prices
	Sept-04	Oct-04	Nov-04	Dec-04	Jan-05	Feb-05
Price ($ per Mcf)	4.86	5.45	6.07	6.25	5.52	5.59
Price ($ per MMBtu)	4.73	5.30	5.91	6.08	5.37	5.44
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.

 Storage:

Working gas inventories were 1,474 Bcf as of Friday, March 4, according to EIA's Weekly Natural Gas Storage Report. Despite the relatively large withdrawal of 139 Bcf for the week, the level of working gas in storage is 25.7 percent higher than the 5-year (2000-2004) average for this time of the year.(See Storage Figure) Colder-than-normal temperatures prevailed in much of the eastern half of the nation during the week, which resulted in significant space-heating demand. According to the National Weather Service, the East North Central regions and regions along the Atlantic coast experienced 15 to 33 percent colder-than-normal temperatures, respectively, as measured by gas-customer weighted heating degree days (HDD) for the week ending Thursday, March 3. Additionally, temperatures in these regions were 59 to 64 percent colder than last year for the same week. The lower-than-normal temperatures in the eastern United States resulted in a withdrawal in the East Region of 101 Bcf, which is 94 percent higher than the 5-year average withdrawal of 52 Bcf for the week. For the entire Lower 48 States, temperatures were 13 percent colder than normal. (See HDD table)

 

Other Market Trends:

EIA Releases the Short-Term Energy Outlook for March 2005: The Energy Information Administration released on Tuesday its monthly Short Term Energy Outlook, which estimates prices and supply and demand through 2006 for natural gas, crude oil, petroleum, electricity, and coal. According to the report, natural gas spot prices are down from the December high point, but remain well above previous expectations despite reduced heating demand and very high gas storage levels. The average Henry Hub natural gas spot price was about $6.16 per MMBtu in January and February, compared with $6.60 per MMBtu in December. Working gas in storage is estimated to have totaled 1,570 billion cubic feet at the end of February according to this report, which is 36 percent higher than one year ago and 30 percent higher than the 5-year average. Henry Hub prices are expected to average roughly $5.65-$6.42 per MMBtu annually through 2006. Natural gas demand is projected to increase by 2.2 percent in 2005, down from the 3.0 percent projected in last month's Outlook. Domestic natural gas production in 2005 is now expected to increase by 0.5 percent from the 2004 level rather than by the 1.6 percent previously projected, despite high gas-directed drilling rates.

 

Methane Hydrate Expedition Planned in Gulf of Mexico: A team of researchers led by the Department of Energy (DOE) will leave on a 35 day cruise later this month to study methane hydrates in the Gulf of Mexico. A semi-submersible drilling rig, named the Uncle John, will aim to map this potentially vast resource as part of DOE's Gulf of Mexico Joint Industry Project, a 4-year, $13.6 million, cost-shared effort to develop technologies that locate and safely drill through or near the hydrate deposits. Found far beneath the surface waters along the U.S. coast and the permafrost of Alaska, methane hydrate deposits around the world may contain up to 200,000 trillion cubic feet (Tcf) of natural gas, according to DOE. This resource estimate eclipses the current volume of worldwide reserves, which is about 6,000 Tcf. Despite the potential, however, researchers must continue to study characteristics, safety issues, and cost-effectiveness before production is possible. The project is one part of DOE's National Methane Hydrate R&D Program, in the National Energy Technology Laboratory. The Uncle John study will focus on two Gulf sites at a depth of 4,300 feet: the Keathley Canyon and Atwater Valley areas on the Outer Continental Shelf off the coasts of Texas and Louisiana, respectively. Researchers plan to collect drilling, logging, and coring data as well as samples that will be preserved for laboratory testing. Results will help researchers better understand the potential of methane hydrate resources in the Gulf of Mexico and will also allow researchers a chance to develop better skills at identifying the deposits.

EIA Requests Comments on Natural Gas Surveys: The Energy Information Administration (EIA) announced in a notice in the Federal Register on March 7 that it is soliciting comments through May 6, 2005, on proposed revisions to surveys in the Natural Gas Data Collection Program Package. EIA also seeks comments on an extension for three years of its collection authority for these surveys under the Paperwork Reduction Act of 1995. The surveys collect information on natural gas production, underground storage, transmission, distribution, and consumption by sector, and wellhead and consumer prices. The information collected by the surveys is used to support analyses of the natural gas industry, and estimates generated from data collected on these surveys are posted to the EIA web site in various EIA products. Included in the notice is a proposal to conduct a new survey on liquefied natural gas (LNG) storage, subject to funds being provided in the FY2007 budget. In 2003, EIA proposed to collect monthly and annual LNG storage information, but decided not to implement the proposal at that time. EIA's revised proposal, which includes September to March telephone surveys, reduces the budget requirements and has reduced the survey scope. The Federal Register notice also provides guidelines for commenting on proposed survey revisions, extension of authority, or the new survey.

Summary:

Spot prices at most market locations in the Lower 48 States rose in comparison with the previous week as cold temperatures dominated major gas-consuming regions in the Midwest and Atlantic Coast. For the week, the price at the Henry Hub increased 5.7 percent to $6.99 per MMBtu. At the NYMEX, the price of the futures contract for delivery in April increased 16.3 cents per MMBtu to end trading yesterday at $6.880. Net storage withdrawals for the week ending March 4 were 139 Bcf, leaving stocks at 1,474 Bcf, or 25.7 percent above the 5-year average.

Short-Term Energy Outlook