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Natural Gas Restructuring
The Global Liquefied Natural Gas Market: Status and Outlook
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Overview:  Thursday, August 18 (next release 2:00 p.m. on August 25)

Since Wednesday, August 10, natural gas spot prices increased more than 50 cents per MMBtu at virtually all market locations in the Lower 48 States, with increases exceeding $1 per MMBtu in the Northeast and Gulf of México regions.  For the week (Wednesday–Wednesday), prices at the Henry Hub increased $1.17 per MMBtu, or more than 13 percent, to $9.98 per MMBtu.  Yesterday (August 17), the price of the NYMEX futures contract for September delivery at the Henry Hub settled at $9.391 per MMBtu, climbing about 32 cents or nearly 4 percent since Wednesday, August 10.  Natural gas in storage was 2,515 Bcf as of August 12, which is about 6 percent above the 5-year average.  The spot price for West Texas Intermediate (WTI) crude oil decreased $1.51 per barrel, or about 2 percent, on the week to $63.29 per barrel or $10.91 per MMBtu.




Spot prices increased at virtually all market locations since last Wednesday, August 10, as prices hit record levels for this time of the year at many locations.  Muggy weather and hot temperatures in most of the Lower 48 States likely contributed to the price increases, despite the modest declines in crude oil prices.  Prices increased more than $1 per MMBtu, or about 10 to 17 percent, at most market locations in the Northeast and Gulf of Mexico regions.  Elsewhere, price increases ranged between $0.50 and $1 per MMBtu since last Wednesday.  Price increases in the California and Rocky Mountains regions ranged between 50 and 70 cents generally since last Wednesday, while prices in the Midwest and Midcontinent regions gained just under $1 per MMBtu at most market locations.  As of August 17, 2005, natural gas prices at most market locations in the Lower 48 States are about 60 to 90 percent above last year’s levels.  At $9.98 per MMBtu, prices at the Henry Hub have increased by $2.60 per MMBtu, or more than 35 percent, in the three and one-half weeks since July 25, when the most recent pattern of increasing prices began. Henry Hub spot prices also are $4.72 per MMBtu, or nearly 90 percent, above last year’s level at this time.   



At the NYMEX, the price of the futures contract for September delivery at the Henry Hub increased 32 cents per MMBtu or nearly 4 percent since Wednesday, August 10, to $9.391 per MMBtu. Prices for the futures contracts through March 2005 increased between 11 and 32 cents per MMBtu with successively smaller increments for each delivery month. Futures prices for the contracts from September 2005 through November 2005 became “backwardated,” as the Henry Hub spot price yesterday was between 59 and 21 cents higher than the prices for futures contracts for those months.  This likely reflects the effects of increased tightness in the natural gas spot market, owing to the continued warm temperatures in most regions and tightness in coal-fired and hydro-electric electricity supply.  With spot prices surging and futures prices showing relatively modest gains since last Wednesday, the 12-month futures strip traded at a discount of about 63 cents to the spot price on Wednesday, August 17.  Nevertheless, the prices for futures contracts for delivery during the peak heating season months, December 2005 through March 2006, continue to exceed the spot price by as much as $0.41 per MMBtu and about $0.28 on average.


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 as of August 12 totaled 2,515 Bcf, which is 5.9 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 net addition to storage was 52 Bcf, which is 15 percent below the 5-year average net injection of 61 Bcf and more than 30 percent below the net injection of 77 Bcf during the report week last year. This marks the seventh consecutive week that the implied net injection for the report week was lower than the 5-year average injection, which has reduced the difference between current storage levels and the 5-year average to 140 Bcf from 227 Bcf at the beginning of the injection season (April 1). Throughout much of the report week, temperatures were once again considerably warmer-than-normal, also for the seventh consecutive week, according to the number of cooling degree days (CDDs) as measured by the National Weather Service (See Temperature Maps). CDDs for the Lower 48 States for the week ending August 11 numbered about 18 percent more than normal and more than 60 percent greater than last year. All Census regions with the exception of the West South Central region experienced greater than normal CDDs. The largest deviations from normal occurred in the Northeast, as CDDs in the New England and Middle Atlantic regions numbered, respectively, 66 and 47 percent more than normal.



Other Market Trends:

Lease Sale 196 Held with New Provisions for Ultra-Deep Water Leases:  The Minerals Management Service (MMS) received 422 bids on 346 tracts in the Western Gulf of Mexico Oil and Gas Lease Sale 196 on August 17, 2005.  This is the first lease sale held since new provisions in the Energy Policy Act of 2005 created two new royalty suspension volume categories in ultra-deep water areas (greater than 1,600 meters, or approximately 5,249 feet).  The new legislation, signed into law on August 8, 2005, replaces the 1,600 meters or deeper category of royalty relief with two new categories:  (1) leases located in water depths of 1,600 to 2,000 meters (5,249 to 6,562 feet) receive royalty relief on 12 million barrels of oil equivalent (BOE) (equivalent to approximately 68 billion cubic feet of gas); and (2) leases located in water depths greater than 2,000 meters receive royalty relief on 16 million BOE (approximately 90 Bcf).  Of the 422 bids, approximately 25 percent are in ultra-deep water, with the deepest tract bid in 3,278 meters (about 10,755 feet) of water.  Twenty-six tracts in the first category (1,600 – 2,000 meters) received bids and 60 tracts in the second category (2,000 meters or deeper) received bids.  This is an increase from the 2004 Western Gulf sale in which 55 blocks in water depths greater than 1,600 received bids. 


Federal Judge Blocks Offshore Drilling in California:  On Friday, August 12, a Federal judge in California ruled that the Minerals Management Service (MMS) could not extend 36 undeveloped oil and natural gas leases off the coast of California until an extensive environmental risk assessment is conducted.  The leases, which are located off the central California coast from Oxnard north to San Luis Obispo, were issued to companies between 1968 and 1984, but none have been put into production.  They were set to expire over 15 years ago, but MMS has succeeded in extending the leases since then.  The Federal judge’s decision comes one day after the California Coastal Commission, a State government agency, voted to authorize the State’s attorney general to file suit if the MMS attempts to extend the leases again.  The Commission reasoned that Federal authorities failed to provide sufficient information on the potential for negative environment impact.     


EIA Releases New Annual Energy Review:  The Energy Information Administration (EIA) released the Annual Energy Review 2004 (AER) on August 15, 2005. This publication provides annual energy statistics, such as total production, consumption, and trade through 2004.  The publication also includes overviews of petroleum, natural gas, coal, electricity, nuclear energy, renewable energy sectors, as well as international energy statistics. The natural gas overview shows that in 2004 consumption was 22.3 trillion cubic feet (Tcf), production was 18.8 Tcf, and net imports were 3.4 Tcf.  According to the AER, the consumption of natural gas in 2004 was about 53 Bcf or 0.2 percent less than the previous year’s consumption of about 22.4 Tcf.  Similarly, natural gas production was almost 260 Bcf or 1.4 percent less than the 2003 level of more than 19 Tcf, whereas net imports were almost 100 Bcf or 3 percent more than the 3.3 Tcf in 2003.



Natural gas spot prices increased at virtually all market locations in the Lower 48 States since last Wednesday, August 10.  Prices for the futures contracts for the upcoming heating season (November 2005 through March 2006) continued to trade at a premium to the Henry Hub spot price, despite the backwardation of the 12-month futures strip.  Working gas in storage was 2,515 Bcf, which is about 6 percent above the 5-year average.  


 Short-Term Energy Outlook





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