Natural Gas

Overview: Thursday, July 28 (next release 2:00 p.m. on August 4)

Since Wednesday, July 20, natural gas spot prices have decreased at all market locations in the Lower 48 States. For the week (Wednesday-Wednesday), prices at the Henry Hub decreased by about 3 percent to $7.50 per MMBtu. Yesterday (July 27), the price of the NYMEX futures contract for August delivery at the Henry Hub settled at $7.647 per MMBtu in its final day of trading, increasing roughly 10 cents or about 1 percent since last Wednesday (July 20). Natural gas in storage was 2,381 Bcf as of July 22, which is 9 percent above the 5-year average. The spot price for West Texas Intermediate (WTI) crude oil rose $2.39 per barrel or about 4 percent on the week to $59.12 per barrel or $10.19 per MMBtu.

 

Prices:

Despite record-setting heat and power usage in many areas, spot market prices declined at all market locations since last Wednesday, July 20. High linepack on some western pipeline systems, returning production in the Gulf of Mexico from storm related shut-ins, and the lack of a threat to offshore production from the latest tropical storms likely played a role in price decreases on the week. According to the final report on Hurricane Emily released by the Minerals Management Service (MMS), as of Friday, July 22, remaining shut-in production was down to107 MMcf per day of natural gas and 7,886 barrels of oil per day. Natural gas price decreases were widespread, ranging between 17 and 64 cents per MMBtu, or 2 and 9 percent at all market locations. Prices at the Henry Hub decreased 25 cents or about 3 percent since last Wednesday, while most other locations decreased by an average of 38 cents per MMBtu. The largest decreases in spot prices since Wednesday, July 20, principally occurred in the major gas-consuming areas, as prices in the Northeast, the Midwest, and the Midcontinent decreased by an average of 45 cents per MMBtu. Price declines were less pronounced in major gas-producing areas, where prices in Texas, Louisiana, and Rocky Mountains recorded average declines of 35 cents per MMBtu.

 

 

At the NYMEX, the price of the futures contract for August delivery at the Henry Hub increased about 10 cents per MMBtu or about 1 percent since last Wednesday to $7.647 per MMBtu in its final day of trading yesterday (July 27). After opening as the near-month contract at $7.087 per MMBtu, the price for the August contract increased by 56 cents or 8 percent. Unlike the near-month futures contract price, the prices of the futures contracts for delivery in each of the remaining 4 months of 2005 decreased from last Wednesday's level. Futures contract prices for each month through the remaining months of 2005 and January 2006 exceed the Henry Hub spot price by $0.09 to $1.54 per MMBtu with the difference for each successive month larger than that of the preceding month. The January 2006 contract traded at a $1.54 premium to the Henry Hub spot price yesterday. With the futures strip through next winter trading at a significant premium to the Henry Hub spot price, economic incentives to inject gas into storage remain significant. However, the expected large cooling demand for natural gas and uncertainty about future storm activity in the Gulf of Mexico will likely continue to compete with natural gas for storage during the warmest days of summer.

 

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 totaled 2,381 Bcf as of Friday, July 22, according to EIA's Weekly Natural Gas Storage Report. Working gas inventories are roughly 9.0 percent above the 5-year average for the report week, and about 4.1 percent above the level last year for the same week (See Storage Figure). The implied net injection during the week ending July 22 was 42 Bcf, which is the lowest net injection reported since May 6, when storage activity may have been influenced by lingering cold weather. The implied net injection fell 36 percent below the 5-year average of 66 Bcf for the report week and 40 percent below last year's estimated net injection for the week of 70 Bcf. The falloff in net additions to underground storage was driven, at least in part, by higher temperatures as demand for gas-fired power generation increased to meet air-conditioning needs across the country. During the report week, the weather for the country as a whole was about 29 percent warmer than normal, as measured by cooling degree days (CDDs) for the week ending July 21, according to the National Weather Service (See Temperature Maps). Moreover, key markets for cooling demand were considerably warmer than normal. In the East North Central region, including Chicago and other major population centers, CDDs were 53 percent above normal. In the Middle Atlantic region, CDDs were about 54 percent above normal.

 

Other Market Trends:

EIA Announces Changes to Estimation of Weekly Natural Gas Storage Stocks: The Energy Information Administration (EIA) will revise the estimation system used to produce the Weekly Natural Gas Storage Report (WNGSR). The effective date for the new system is August 4, 2005, when working gas estimates as of July 29 will be released. On August 4, EIA also will release storage estimates based on the new methodology for all weeks from June 17, 2005 to July 22, 2005.  The new system changes the sample of companies used for estimation and the approach used to estimate the total volume of working gas in storage from the weekly sample data. The selected method of estimation uses both recent data from the EIA-191, "Monthly and Annual Underground Storage Report," and the latest data collected on the weekly EIA-912 survey. The new method is based on analysis of data trends on an individual company basis. Company-specific estimates are summed to produce regional and national totals. This is a distinct departure in approach from the current method, which estimates the total volume for non-sample companies as a group based on the aggregate volume of a set of sample companies. A summary discussion of the changes is available at: http://tonto.eia.doe.gov/oog/info/ngs/methchange-2005.html.

 

DOE Funds New Way to Raise Natural Gas Supplies and Water: The Office of Fossil Energy's National Energy Technology Laboratory (NETL) has announced the commercialization of a new technology designed to boost supplies of natural gas and water. The technology, developed by Drake Engineering of Helena, Montana, and funded by NETL, will help producers extracting coalbed natural gas (CBNG) to clean up the co-produced water so that it can be used for irrigation and other beneficial purposes. Coalbeds are natural aquifers, and the water in coalbeds maintains the pressure that keeps the methane adsorbed to the coal. In order to extract CBNG, water is pumped to the surface to lower the pressure in the coalbed reservoirs, which then helps release the methane. That methane can be used in natural gas pipelines with no additional treatment. The new technology removes sodium from the water in order to make it a useful resource. Without this treatment, operators might be forced to choose between expensively treating water and shutting in the wells. If rendered suitable, the CBNG water could help the western states solve their water shortage problem. Further, because coalbed resources are well known in the United States, exploration risk is minimal, and the shallow depths associated with CBNG drilling keeps drilling costs relatively low. Economically recoverable resources of CBNG are estimated at 100 trillion cubic feet—more than half the Nation's total proved conventional natural gas reserves.

 

Summary:

Spot prices decreased at all market locations in the Lower 48 States, with decreases ranging between 17 and 64 cents per MMBtu. Prices for the August NYMEX futures contract increased about 1 percent from last week's level. Working gas in storage increased to 2,381 Bcf, which is 9 percent above the 5-year average.

 

Short-Term Energy Outlook