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Natural Gas Weekly Update Archive

for week ending May 25, 2005  |  Release date:  May 26, 2005   |  Previous weeks

Overview: Thursday, May 26 (next release 2:00 p.m. on June 2)

Since Wednesday, May 18, natural gas spot prices have declined at most market locations in the Lower 48 States, while climbing in the Southwestern region. For the week (Wednesday-Wednesday), prices at the Henry Hub decreased 17 cents, or nearly 3 percent, to $6.33 per MMBtu. Yesterday (May 25), the price of the NYMEX futures contract for June delivery at the Henry Hub settled at $6.315 per MMBtu, decreasing roughly 8 cents, or about 1 percent, since last Wednesday. Natural gas in storage was 1,692 Bcf as of May 20, which is about 22 percent above the 5-year average. The spot price for West Texas Intermediate (WTI) crude oil increased $3.38 per barrel, or about 7 percent, on the week to $50.37 per barrel or $8.684 per MMBtu.

 

Prices:

Spot prices decreased since last Wednesday, May 18, at most market locations outside the Southwestern region of the Lower 48 States. Moderating temperatures in the Mid-continent, Northeast, Southeast, and northern California regions eased demand for natural gas, contributing to price declines, ranging between 10 and 20 cents per MMBtu at most market locations. The Midwest and Midcontinent regions had the steepest declines with prices falling between 20 cents and 34 cents per MMBtu at some market locations. Meanwhile, soaring temperatures in the Southwest (including southern California, parts of the Rocky Mountains region, and West Texas) contributed to climbing prices in most regional markets. Prices at Northwest-South of Green River rebounded $1.71 from a 2-day low to average $5.12 per MMBtu on Thursday, May 20, as the scheduled outage of the Moab (Utah) Compressor Station came to an end. Warmer weather moving into central and southern California led to SoCal and Pacific Gas and Electric (PG&E) lifting operational flow orders (OFOs) on Monday, May 23, contributing to higher prices in the Rocky Mountains and West Texas regions. As of May 25, 2005, natural gas prices at most market locations in the Lower 48 States are about 5 to 10 percent below last year's levels. At $6.33 per MMBtu, prices at the Henry Hub are 37 cents per MMBtu, or 6 percent, below last year's level at this time. This is the lowest level for the Henry Hub spot price since February 2005.

 

 

At the NYMEX, the price of the futures contract for June delivery at the Henry Hub decreased about 8 cents per MMBtu or 1 percent since last Wednesday, May 18, to $6.315 per MMBtu. Similarly, prices for the futures contracts through the remainder of 2005 injection season (July 2005 through October 2005) also decreased about 8 cents per MMBtu or about 1 percent. Futures prices remained in contango, as prices for the futures contracts for July 2005 through October 2005 ranged between 4 and 20 cents higher than the Henry Hub spot price, with successively higher differentials in each succeeding month. Despite the relatively narrow differentials through the injection season months, the 12-month futures strip (June 2005 through May 2006) is trading at a 67-cent premium to the Henry Hub spot price. This is driven primarily by the large differentials of the futures prices for the heating season months with respect to the Henry Hub spot price, as futures contract prices continue to exceed the spot price by about $1.33 per MMBtu on average during the 5-month period (November 2005 through March 2006). The steep contango in the natural gas futures market throughout the heating season months provides suppliers significant incentives to inject natural gas into storage.

 

Recent Natural Gas Market Data

 

Estimated Average Wellhead Prices

 

Nov-04

Dec-04

Jan-05

Feb-05

Mar-05

Apr-05

Price ($ per Mcf)

6.07

6.25

5.52

5.59

5.98

6.44

Price ($ per MMBtu)

5.91

6.08

5.37

5.44

5.82

6.27

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 in storage was 1,692 Bcf, or 21.8 percent above the 5-year average, as of Friday, May 20, according to EIA's Weekly Natural Gas Storage Report. (See Storage Figure) At 93 Bcf, the weekly implied net change exceeded the 5-year average by about 15 percent and outstripped last year's net in injection by about 6 percent. This led to an increase in the year-on-year storage differential, as stock levels were 228 Bcf or about 16 percent above year-earlier levels. Moderate temperatures across much of the lower 48 States likely contributed to the above-average injection. (See Temperature Maps) Another factor driving the above-average injection likely included the contango in the natural gas futures market, as the 12-month strip of natural gas futures prices continued to trade at a 67-cent premium to the Henry Hub spot price.

 

Other Market Trends:

New Report Increases Estimated Conventional Natural Gas Resources in Alberta: According to a joint report from Canada's National Energy Board (NEB) and the Alberta Energy and Utilities Board (AEUB), the amount of recoverable conventional natural gas from Alberta is estimated at 223 trillion cubic feet (Tcf), or 7 percent larger than the 2004 estimate from the NEB and 12 percent more than the last estimate by AEUB. The key reason for the increase is enhanced knowledge of the territory gained as a result of increased drilling since 1992. In the report, estimates of ultimate marketable conventional natural gas range between 205 Tcf and 253 Tcf with 223 Tcf as the base case. Of the estimated 223 Tcf, only 62 Tcf or 28 percent remains undiscovered. This estimate reflects only resources in known geologic plays. If new conceptual plays are discovered in the future, the resources for those plays would be added to the current estimate. The study also excludes unconventional gas resources, of which coalbed methane deposits are expected to comprise 500 Tcf of gas in place. Alberta continues to be the main source of natural gas for Canadian gas demand, and remains an integral supplier of natural gas exported to the United States. In 2004, natural gas imports from Canada totaled 3.6 Tcf, accounting for almost 85 percent of the natural gas imported to the United States.

 

Summary:

Natural gas spot prices decreased at most market locations outside of the Southwestern region of the Lower 48 States since last Wednesday, May 18. Prices for the futures contracts for the upcoming heating season (November 2005 through March 2006) continued to trade at a significant premium to the Henry Hub spot price. Working gas in storage was 1,692 Bcf, which is about 22 percent above the 5-year average.

 

 

Short-Term Energy Outlook