Overview:  Thursday, July 14 (next release 2:00 p.m. on July 21)

Since Wednesday, July 6, natural gas spot prices have increased at virtually all market locations in the Lower 48 States, owing at least partially to the effects of storm activity in the Gulf of Mexico.  For the week (Wednesday-Wednesday), prices at the Henry Hub increased 10 cents, or about 1.3 percent, to $7.78 per MMBtu.  Yesterday (July 13), the price of the NYMEX futures contract for August delivery at the Henry Hub settled at $7.900 per MMBtu, increasing roughly 21 cents or about 3 percent since last Wednesday (July 6).  Natural gas in storage was 2,280 Bcf as of July 8, which is 11.7 percent above the 5-year average.  The spot price for West Texas Intermediate (WTI) crude oil decreased $1.24 per barrel, or about 2 percent, since last Wednesday, after reaching an all time high of $61.24 per barrel on July 6. Crude oil traded yesterday at $60 per barrel or $10.34 per MMBtu.

 

 

Prices:

Natural gas prices rose in the wake of Tropical Storm Cindy and Hurricane Dennis, as storm-related shut-ins reduced gas production in the Gulf of Mexico.  The lost production combined with high temperatures in a few areas gave a boost to spot prices across most of the Lower 48 States. As of yesterday, July 13, the Minerals Management Service (MMS) reported that 1.03 Bcf per day of natural gas production still remains shut in as a result of the recent storm activity in the Gulf (see Other Market Trends). Natural gas price increases since last Wednesday, July 6, were widespread, ranging between 10 and 52 cents per MMBtu or about 1 to 7 percent at most market locations.  Prices at the Henry Hub climbed 10 cents or about 1.3 percent since last Wednesday, while prices at other points in Louisiana climbed as much as 20 cents. Approaching the weekend, spot prices at most market locations around the Gulf of Mexico reached their peak on Friday, reflecting the impact of the uncertainty caused by Hurricane Dennis.  On the week, the largest increases tended to cluster in the Gulf Coast, the Northeast and in the Midcontinent regions. Western points recorded smaller increases as high-linepack operational flow orders (OFO) by PG&E and SoCal Gas for Saturday limited the price increases at regional markets. Thus, the SoCal Border Average and PG&E citygate prices rose by about 6 cents and 2 cents, respectively, since last Wednesday. As of July 13, 2005, prices at the Henry Hub were about 33 percent above last year’s level.

 

 

At the NYMEX, the price of the futures contract for August delivery at the Henry Hub increased about 21 cents per MMBtu or nearly 3 percent since last Wednesday, July 6, to $7.900 per MMBtu. This is the highest settlement price for the August futures contract since April 1, 2005. The futures contracts for delivery during the heating season months exhibited successively smaller increases, as price increases ranged from 3 to 0.9 percent. While the August 2005 contract is currently trading at a relatively low premium to the Henry Hub spot price of about 12 cents per MMBtu, futures contract prices for each month from November 2005 through March 2006 exceed the Henry Hub spot price by at least $0.69 to about $1.46 per MMBtu.

 

Recent Natural Gas Market Data

 

Estimated Average Wellhead Prices
	Jan-05	Feb-05	Mar-05	Apr-05	May-05	Jun-05
Price ($ per Mcf)	5.52	5.59	5.98	6.44	6.02	6.15
Price ($ per MMBtu)	5.37	5.44	5.82	6.27	5.86	5.99
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 increased to 2,280 Bcf as of Friday, July 8, which is nearly 12 percent above the 5-year average inventory level for the report week, according to EIA’s Weekly Natural Gas Storage Report (See Storage Figure).  The implied net injection of 94 Bcf is 4 Bcf or 4 percent less than the 5-year average injection for the report week of 98 Bcf and 13 percent less than last year’s injection of 108 Bcf.  Although this is the second consecutive week in which the year-on-year storage surplus declined, working gas levels remain 140 Bcf more than the level estimated for this time last year and 238 Bcf more than the 5-year average.  Temperatures were below normal across the New England, East North Central, and West North Central Census regions, and above normal elsewhere in the Lower 48 States (See Temperature Maps).  Overall, cooling degree days in the Lower 48 States were about 3 percent above normal.  These warmer-than-normal temperatures and reduced natural gas production in the Gulf of Mexico, owing to shut-ins of offshore production as a result of the threat posed by Tropical Storm Cindy and Hurricane Dennis, likely contributed to the below-average net injection.  According to the Minerals Management Service, cumulative shut-ins of natural gas production as of July 7 totaled about 1.7 Bcf.

 

 

Other Market Trends:

Storm Activity in the Gulf of Mexico:  An active Atlantic hurricane season recently resulted in two storms that caused production disruptions in the offshore Gulf of Mexico (GOM). Based on reports by 15 companies, the Minerals Management Service (MMS) reported that production lost from shut-ins amounted to 1.03 Bcf per day of natural gas and 231.8 thousand barrels of oil per day as of 11:00 a.m. (Central Time) on July 13.  Since July 5, cumulative shut-ins related to Tropical Storm Cindy and Hurricane Dennis resulted in losses of 24.7 Bcf of natural gas, which is the equivalent of almost two and one-half days’ production in the Federal areas of the Gulf of Mexico. Additionally, operators shut in about 5.5 million barrels of oil, amounting to almost four days of oil production in the GOM. As of July 13, the evacuations continue to affect four manned platforms and two of the drilling rigs that are operating in the Gulf. 

 

FERC Issues Order Clarifying Policy Statement on Natural Gas and Electric Price Indices: The Federal Energy Regulatory Commission (FERC) issued an order on July 6, 2005, clarifying a previously issued policy statement on natural gas and electric price indices, which was one of many steps FERC took to encourage better transparency of price formation in wholesale energy markets. In response to two requests regarding matters addressed in its prior orders, FERC clarified that the safe harbor provisions of the Policy Statement extend to an energy hub and its participants, and also extend to data providers that, while not specifically subject to the Market Behavior Rules, nonetheless wish to provide transaction data to price index developers. While the Policy Statement focused on existing industry practice and the use of commercially published price indices for price discovery in energy markets, FERC also noted that the Policy Statement was not intended to interfere with improvements in current price indices or any future evolution of the price discovery process that will bring more accurate, reliable, and transparent price information to energy markets. With this latest order, FERC granted a safe harbor assurance to a data hub or other new entity that is acting as a data provider when it provides aggregate data to others, if it adopts the applicable Policy Statement standards. FERC also stated that the safe harbor protection applies to data providers during any testing or demonstration phase of a new industry structure for gathering and disseminating wholesale price data, assuming the data provider follows the Policy Statement standards.

 

Summary:

Natural gas prices increased across much of the Lower 48 States since last Wednesday, July 6, as storm activity reduced natural gas production in the Gulf of Mexico and supported price increases on both the spot and futures markets.  Working gas in storage increased to 2,280 Bcf, which is about 11.7 percent above the 5-year average.  

 

 

 Short-Term Energy Outlook