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Natural Gas Weekly Update Archive

for week ending June 16 , 2005  |  Release date:  June 16, 2005   |  Previous weeks

Overview: Thursday, June 16 (next release 2:00 p.m. on June 23)

Summer-like heat across much of the country and shut-ins in the Gulf of Mexico owing to the first tropical storm of this year's hurricane season continued to put upward pressure on natural gas prices this week (June 8 – June 15). The Henry Hub spot price increased 17 cents per MMBtu or 2.4 percent on the week to $7.39 in trading yesterday (June 15). The NYMEX futures contract for July delivery at the Henry Hub gained 44 cents since last Wednesday, closing yesterday at $7.441 per MMBtu. Natural gas in storage as of Friday, June 10, totaled an estimated 1,963 Bcf, which is 17.6 percent above the 5-year average. The spot price for West Texas Intermediate (WTI) crude oil increased $3.02 per barrel, or about 6 percent, on the week to $55.53 per barrel, or $9.57 per MMBtu.



The Henry Hub spot price increased in three of the five trading sessions this week, trading yesterday at $7.39 per MMBtu, or 17 cents higher than last Wednesday (June 8). Increases of 4 to 45 cents per MMBtu occurred at most market locations throughout the producing area in the Southwest and Midcontinent. The largest price increase in the Lower 48 States since last Wednesday occurred at the El Paso North Baja market location in Arizona/Nevada, where yesterday's price was 67 cents, or almost 11 percent, higher than last Wednesday's price. At the market locations where increases occurred on the week, prices rose by an average of 14 cents per MMBtu, as hot weather across much of the Lower 48 States spurred higher natural gas demand to meet larger cooling requirements and shut-ins in the Gulf of Mexico owing to Tropical Storm Arlene lessened supplies. In its final report on the storm, the Minerals Management Service (MMS) stated Tuesday that one platform was still evacuated in the Gulf of Mexico, along with 59 MMcf per day of shut-in natural gas and 5,686 barrels per day of crude oil. According to the report, the cumulative shut-in gas production from Friday through Tuesday was 3.4 Bcf, which is equivalent to about 31 percent of normal daily production in the Federal waters of the Gulf of Mexico.



At the NYMEX, the price of the futures contract for July delivery at the Henry Hub increased by $0.441 per MMBtu since Wednesday, June 8, to settle at $7.441 per MMBtu yesterday. At this price, the July contract is $1.30 per MMBtu, or 21 percent, higher than the expiration price of the July 2004 contract. On the week, contracts for heating-season delivery (November 2005 through March 2006) rose by slightly less than the near-month contract at an average of 40 cents per MMBtu. Currently, the highest priced contracts over the next year are the January and February 2006 contracts, both of which closed yesterday at $8.737 per MMBtu. These prices comprise a nearly $1.35 premium to the spot Henry Hub price, providing a strong incentive for industry to store gas for next winter.


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 storage was 1,963 Bcf as of Friday, June 10, 2005, according to the EIA Weekly Natural Gas Storage Report (See Storage Figure). The current stock levels are 17.6 percent or almost 300 Bcf above the 5-year average for the report week. The implied net injection during the report week was 73 Bcf, which is about 24 percent below the 5-year average and the volume reported for the same week last year, both of which were 96 Bcf. The most recent week's report marks only the third time in the 11 reporting weeks during the current refill season that the net change was below the 5-year average. Cumulative net injections this refill season exceed the 5-year average by 89 Bcf. Above-normal temperatures in most regions of the Lower 48 States during the week ended June 9 likely contributed to the lower-than-average rate of injections. As measured by cooling degree days (CDDs), temperatures in all census regions except the Pacific and Mountain census regions were significantly above normal. (See Temperature Maps)



Other Market Trends:

Coalbed Methane: Coal is the most abundant energy source in the world, and the United States is estimated to possess more than 200 years of supply based on current production rates. The coalification process, whereby plant material is progressively converted to coal, generates large quantities of methane-rich gases, which are trapped within the coal. The presence of this gas has been long recognized owing to experience in underground coal mining. Only in recent history has coal been recognized as a reservoir rock as well as a source rock, thus representing a vast "unconventional" natural gas resource. Coalbed methane can be added to natural gas pipelines without any special treatment. Gas content generally increases by coal type, with depth of the coalbed, and with reservoir pressure. Fractures, or cleats, that permeate coalbeds are usually filled with water; the deeper the coalbed, the less water is present. The first step in producing methane from coal is removing water from the coalbed, which reduces the pressure holding the methane in the coal allowing it to desorb.


Although unconventional gas resources are abundant, they are generally more costly to produce. Their exploitation increased in the late 1980s and 1990s with the successful implementation of tax incentives designed to encourage their development. Since then, technologies developed and advanced in the pursuit of unconventional gas resources have contributed to continued growth in production even in the absence of the tax incentives, which became unavailable for production from wells drilled after December 31, 1992, and ended for sales of gas produced from qualified wells after December 31, 2002. Coalbed methane production in the United States has increased from 91 billion cubic feet (Bcf) in 1989 to 1.6 trillion cubic feet (Tcf) in 2003.


As a result of technological improvements and rising natural gas prices, natural gas production from unconventional sources (coalbed methane, and gas from tight formations and Devonian shale) is projected to increase more rapidly than conventional production. According to EIA's Annual Energy Outlook 2005 (AEO2005), Lower 48 States' unconventional gas production is projected to grow from 7.01 Tcf in 2004 to 8.6 Tcf in 2025 and from 35 percent of total U.S. production in 2004 to 39 percent in 2025. Coalbed methane is expected to increase from 1.7 Tcf in 2004 to a record high of 1.94 Tcf in 2014. After 2014, however, production of coalbed methane is expected to decrease to 1.64 Tcf by 2025, accounting for 19 percent of total unconventional gas production in 2025.



Natural gas prices at most spot market locations increased on the week. At the market locations where increases occurred, prices rose by an average of 14 cents per MMBtu owing to hot temperatures across much of the Lower 48 States and storm activity in the Gulf of Mexico. The NYMEX price for July delivery increased by $0.441 per MMBtu to settle at $7.441 on Wednesday, June 15. As of June 10, working gas in underground storage was an estimated 1,963 Bcf, which is 17.6 percent above the 5-year average. This week's implied net change from the previous week was 73 Bcf.


Short-Term Energy Outlook