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Overview: Thursday, August 4 (next release 2:00 p.m. on August 11)
Natural gas spot prices increased sharply this week (Wednesday-Wednesday, July 27 – August 3), as demand for power generation remained high in order to meet air-conditioning load and crude oil continued to trade near record-high prices. For the week, the price at the Henry Hub increased $1.25 per MMBtu, or about 17 percent, to $8.75. At the New York Mercantile Exchange (NYMEX), the price of the futures contract for September delivery at the Henry Hub moved about 76 cents per MMBtu higher to settle yesterday (Wednesday, August 3) at $8.351. Natural gas in storage was 2,420 Bcf as of Friday, July 29, which is 7.6 percent higher than the 5-year average. However, the hot temperatures throughout the Lower 48 States have slowed net injections in the past several weeks. The spot price for West Texas Intermediate (WTI) crude oil increased $1.64 per barrel or about 3 percent, since last Wednesday (July 27) to trade yesterday at $60.76 per barrel or $10.48 per MMBtu.
Despite the absence of any significant tropical storm activity in the Gulf of Mexico, natural gas prices increased last week as hotter temperatures blanketed the Lower 48 States. The scorching heat has lifted demand for natural gas from power generators in order to meet cooling demand across the country. The price increases were widespread, with prices at all reporting market locations increasing by $0.94 per MMBtu or more. The Henry Hub price has risen in seven consecutive trading sessions, including increases of 25 cents per MMBtu or more in the last three days, ending the week at $8.75 per MMBtu. This is the highest price for next day delivery at the Henry Hub since February 2003. Other trading locations in producing areas along the Gulf Coast and in West Texas registered similar increases from $1.03 to $1.36 per MMBtu. In the Northeast, temperatures reached into the 90s. As cooling-demand loads surge, the power-grid operators tend to call on the region’s gas-fueled peaking facilities. The result was this week’s highest price increases in the country. Prices in the Northeast gained an average of $1.46 per MMBtu. The price for gas off Transcontinental Gas Pipe Line into New York City increased $1.62 per MMBtu to $9.74, almost a $1-premium to the Henry Hub price. Prices increased significantly in the Rockies and the West Coast as well, albeit slightly less so than in the East. The price at the Southern California border increased $1.04 per MMBtu, or 16 percent, to $7.61. Trading locations in the Rockies registered an average increase of $1.03 per MMBtu to trade at an average of $7.22.
The price of the NYMEX futures contract for September delivery gained $0.759 per MMBtu on the week to settle at $8.351 yesterday (August 3). The prices of futures contracts also moved up this week in response to the current high temperatures. NYMEX futures may also have been pushed higher by updated hurricane forecasts calling for more storms through the end of the season (see below), as well as higher prices for crude oil and petroleum products that compete with natural gas. Before decreasing 2.7 cents per MMBtu yesterday, the price of the near-month contract had increased in six consecutive trading sessions. The price increases resulted in the highest price for a near-month contract ($8.378 per MMBtu on Tuesday, August 2) since November 3, 2004. The NYMEX contract for January 2006 closed yesterday at $9.597 per MMBtu, after reaching a record high of $9.635 on Tuesday. Contracts for the next heating season (November 2005 through March 2006) increased an average of nearly 58 cents per MMBtu to settle at an average of $9.34. The 12-month strip, which is an average of futures prices for the coming year, increased 53 cents per MMBtu to $8.659 since last Wednesday (July 27).
Recent Natural Gas Market Data
Working gas in storage as of July 29 was 2,420 Bcf, which is 7.6 percent above the 5-year average inventory level for the reporting week, according to EIA’s Weekly Natural Gas Storage Report (See Storage Figure). The implied net injection of 37 Bcf is less than half the implied net injection of 81 Bcf last year and about 44 percent lower than the 5-year average injection of 66 Bcf. The difference between this year’s stocks and the 5-year average has declined to 170 Bcf. This week’s net injection of 37 Bcf is the lowest for the Lower 48 States since the beginning of the injection season on April 1, 2005. Cooling demand in key market locations once again contributed to reduced net injections, as warmer-than-normal temperatures were extensive (See Temperature Maps). Temperatures across the Lower 48 States were about 19 percent warmer than normal for the week ending July 28, according to the number of cooling degree days as measured by the National Weather Service.
Other Market Trends:
EIA Implements Changes to Estimation of Weekly Natural Gas Storage Stocks: As announced on July 28, 2005, the Energy Information Administration (EIA) implemented revisions to the estimation system used to produce the Weekly Natural Gas Storage Report (WNGSR). The effective date for the new system is August 4, 2005, with working gas estimates as of July 29. The new system changes the approach used to estimate the total volume of working gas in storage from the weekly sample data and the sample of companies used for estimation. A summary discussion of the changes and a complete description of the methodology are available through links provided on the WNGSR Web-page at http://tonto.eia.doe.gov/oog/info/ngs/ngs.html.
Growth of LNG Imports Slows During First Half of 2005: Imports of liquefied natural gas (LNG) in the first half of 2005 totaled 314 Bcf, or just 6 Bcf more than LNG deliveries during the comparable period last year, according to preliminary data from the Office of Fossil Energy, U.S. Department of Energy. Through the first six months of the year, the Dominion-owned Cove Point LNG terminal, located on the Maryland coast of the Chesapeake Bay, received 119 Bcf, which was the largest volume received at any of the terminals. Tractebel’s Everett facility, located near Boston, Massachusetts, received 88.2 Bcf, the second largest volume of LNG. El Paso’s Southern LNG terminal received 55.4 Bcf, while Trunkline LNG received 48.7 Bcf. Trinidad and Tobago delivered to the United States the most LNG of any source country, providing 242 Bcf from the Point Fortin plant. Algeria was the source of approximately 52 Bcf, while Egypt supplied 5.7 Bcf. Nigeria, Malaysia, Oman, and Qatar delivered the remaining 14 Bcf. Notable events to date in 2005 include the first receipt of LNG deliveries from Egypt, and the opening of a new U.S. import facility. The Gulf Gateway Energy Bridge, the first new LNG port in the United States in over 20 years, began operations and received one cargo carrying 2.6 Bcf from Malaysia in March. Unlike the other four operating terminals, Gulf Gateway is located offshore (in the Gulf of Mexico), where it receives re-gasified natural gas from carriers specially equipped to vaporize LNG onboard. Deliveries of LNG to the United States during the last half of 2005 are expected to pick up with a large expansion of export capacity in Nigeria, Trinidad and Tobago, and Egypt. However, the tremendous year-over-year growth in LNG deliveries since 2002 is not likely to continue in 2005. Although natural gas prices remain elevated in the United States relative to historical standards, global competition for uncommitted LNG cargos, as well as constrained supplies specifically in the Atlantic Basin, has limited deliveries to date in 2005.
NOAA Increases Its 2005 Hurricane Outlook: On August 2, 2005, the National Oceanic and Atmospheric Administration (NOAA) released an updated hurricane forecast for the rest of this year’s season. According to the release, the rest of this year’s hurricane season (August – November) is expected to produce an additional 11 to 14 tropical storms, 7 to 9 of which are expected to turn into hurricanes and 3 to 5 of those into major hurricanes. The total for this hurricane season may reach up to 21 tropical storms, up to 11 of which are expected to turn into hurricanes and up to 7 major hurricanes. Even though there has already been considerable early season activity (7 tropical storms, with two becoming major hurricanes), most of the activity is still expected to occur during the climatological peak months of August-October. According to NOAA, this may be one of the most active hurricane seasons on record for the Atlantic, and the number of storms may be above normal for the Atlantic for the ninth time in the last eleven years. The outlook for the above-normal number of storms follows from atmospheric and oceanic conditions now in place, including warmer-than-normal sea-surface temperatures.
Natural gas prices this week increased by as much as $1.65 per MMBtu as temperatures well above 90 degrees covered much of the country, including major population centers. The Henry Hub spot prices increased $1.25 per MMBtu to $8.75. Natural gas in storage increased to 2,420 Bcf as of July 29, leaving inventories 7.6 percent above the 5-year average.
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