Overview:  Thursday, June 9 (next release 2:00 p.m. on June 16)

Higher demand for natural gas from power generators meeting air-conditioning needs likely contributed to natural gas spot prices climbing $0.38 to $1.28 per MMBtu at most trading locations since Wednesday, June 1. On the week (Wednesday-Wednesday, June 1-8), the Henry Hub spot price rose 86 cents per MMBtu to $7.22. The NYMEX futures contract for July delivery gained 21.1 cents per MMBtu on the week to a daily settlement price of $7.00 on Wednesday, June 8. Working gas in storage as of Friday, June 3, increased to 1,890 Bcf, which is 20.2 percent above the 5-year (2000-2004) average inventory for the week. The spot price for West Texas Intermediate (WTI) crude oil decreased $1.89 per barrel on the week to $52.51, or $9.05 per MMBtu.

 

 

Prices:

Prices moved higher this week as summer-like temperatures pervaded much of the country, resulting in higher demand from power generators. The Henry Hub spot price on Wednesday, June 8, increased to its highest level since April 25, 2005, averaging $7.22 per MMBtu. The Henry Hub price and most other Gulf Coast prices gained approximately 14-15 percent in value on the week, perhaps in part owing to reports of this year’s first tropical storm forming in the Caribbean. Although Tropical Storm Arlene’s path is uncertain, the National Hurricane Center as of Wednesday believed the storm would take a course east of offshore production in the Gulf of Mexico. In the Northeast region, prices increased an average of $1.14 per MMBtu in tandem with higher Gulf prices, with demand in both regions likely higher owing to hotter weather and the associated higher air-conditioning load. The price for spot gas off Tennessee Gas Pipeline in the Northeast rose $1.25 per MMBtu on the week to $8.00, the highest price in the country. Prices in the West, including the Rockies, registered lower gains of between 38 and 61 cents per MMBtu as temperatures in the region were more moderate. The price at the PG&E Citygate in Northern California increased 47 cents on the week to $6.42 per MMBtu.

 

 

At the NYMEX, the futures contract for July delivery gained 21.1 cents, or 3.1 percent, on the week. Most of the increase in value came during Monday’s session as weather forecasts called for sustained hot temperatures. As the near-month contract, the July contract has risen 63 cents per MMBtu, or almost 10 percent, in value since its first daily settlement price of $6.37 on May 27. The July contract is currently priced about 86 cents per MMBtu, or 14 percent, higher than the expiration price for the July 2004 contract ($6.141). The basis differential between the Henry Hub spot price and the average price for the futures contracts for next heating season (November 2005 – March 2006) at the end of trading yesterday was nearly 89 cents per MMBtu. This basis continues to provide suppliers an economic incentive to inject gas into storage in preparation for heating demand next winter. The 12-month strip, or the average price for contracts over the next year (July 2005 – June 2006), closed yesterday at $7.517 per MMBtu, a gain of 10.8 cents per MMBtu on the week.

 

Recent Natural Gas Market Data

 

Estimated Average Wellhead Prices
	Dec-04	Jan-05	Feb-05	Mar-05	Apr-05	May-05
Price ($ per Mcf)	6.25	5.52	5.59	5.98	6.44	6.02
Price ($ per MMBtu)	6.08	5.37	5.44	5.82	6.27	5.86
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 1,890 Bcf as of Friday, June 3, 2005, according to the EIA Weekly Natural Gas Storage Report(See Storage Figure). The current stock levels are 20.2 percent above the 5-year average for the report week and the second highest level for this week in the weekly storage data from 1994 to 2004. The implied net injection during the report week was 112 Bcf, marking the first time during the current refill season that the implied net change exceeded 100 Bcf.  At 112 Bcf, net injections were about 13 percent above the 5-year average of 99 Bcf for the week and about 12 percent above the addition of 100 Bcf reported for the same week last year. Below normal temperatures in most regions of the Lower 48 States during the week ended June 2 likely contributed to the higher-than-average rate of injections. As measured by cooling degree days (CDDs), temperatures in the Pacific and Mountain census regions were above normal, while temperatures in all other regions were below normal. (See Temperature Maps)

 

 

Other Market Trends:

The Department of Energy (DOE) Moves Forward with Alaskan Pipeline Loan Guarantee Program:  The Department of Energy on May 27, 2005, published a Notice of Inquiry in the Federal Register seeking public comment on an $18 billion loan guarantee program to encourage construction of a pipeline that will bring Alaskan natural gas to the continental United States. The Notice seeks further comments following the provisions in the “Alaska Natural Gas Pipeline Act” requiring that DOE facilitate the construction of a pipeline or liquefied natural gas project to bring natural gas from the Alaska North Slope to the Lower 48 States.  DOE noted that the rising demand and minimal increases in natural gas supply have resulted in high natural gas prices that affected residential and industrial users around the country.  The Notice requests public comment on the loan guarantee program and on specific issues about how the program should be administered.  No final decision has been made on whether regulations to implement the loan guarantee program are needed. The comment period closes on July 26, 2005.

 

EIA Releases the Short-Term Energy Outlook for June 2005:  The Energy Information Administration (EIA) expects that natural gas prices at the Henry Hub will average about $6.90 per Mcf in 2005, according to the agency’s Short Term Energy Outlook, released June 7. Owing to mild weather and moderating crude oil prices, the Henry Hub average spot gas price fell to $6.66 per Mcf in May, which was 64 cents per Mcf less than the April price.  As the summer cooling demand increases over the next few months, the natural gas market is more likely to tighten, according to the report   Natural gas prices are expected to increase during the winter months with monthly spot prices likely to reach $7.50 per Mcf by the end of 2005.  The Henry Hub price is expected to average about $7.10 per Mcf in 2006.  EIA noted that it expects the higher prices despite relatively high levels of working gas in storage. Working gas in storage is estimated to be more than 1,800 billion cubic feet at the end of May, a level more than 10 percent higher than both one year ago and the 5-year average.

 

Summary:

Natural gas spot prices at most market locations in the Lower 48 States increased $0.38 to $1.28 per MMBtu owing to higher demand with the temperatures warming across the country. The NYMEX price for July delivery at the Henry Hub climbed about 21 cents per MMBtu to a close of $7.00 on Wednesday, June 8. Natural gas in storage increased to 1,890 Bcf as of June 3, which implied a net injection on the week of 112 Bcf. As a result, the difference between the volume of gas currently in working storage and the 5-year average expanded to 317 Bcf.

 

 Short-Term Energy Outlook