Natural Gas

Overview: Thursday, October 20 (next release 2:00 p.m. on October 27)

Since Wednesday, October 12, spot prices decreased at virtually all market locations in the Lower 48 States. For the week (Wednesday-Wednesday), prices at the Henry Hub decreased 24 cents or about 2 percent to $13.52 per MMBtu. Yesterday (October 19), the price of the NYMEX futures contract for November delivery settled at $13.549 per MMBtu, increasing about 3 cents or 0.2 percent since last Wednesday. The Energy Information Administration (EIA) reported that working gas in storage was 3,062 Bcf as of Friday, October 14, which reflects an implied net increase of 75 Bcf. The spot price for West Texas Intermediate (WTI) crude oil decreased $2.02 per barrel, or about 3 percent, on the week to settle yesterday at $62.11 per barrel, or $10.71 per MMBtu.

 

Prices:

Spot prices ended the week lower at most market locations, with modest declines ranging mostly from about 5 to 50 cents. Higher prices on the week were seen at only six locations scattered in the East Texas, Midcontinent, the Rocky Mountains, and the Northeast regions, with increases averaging 29 cents. However, the week-on-week results mask unusually large price swings, particularly the large decreases on Friday (October 14) and the sharp increases on Monday (October 17). Generally mild temperatures nationwide, expected mild temperatures for the weekend, and many storage facilities recording nearly full facilities supported a decrease in spot prices on Friday, which declined across the board by an average of 82 cents, with many declines of $1 or more. As news of yet another tropical storm affected Monday trading, spot prices gained an average of $1.12 in the Lower 48 States and up to $1.42 in some locations. Since Monday, however, price declines at virtually all spot market locations resulted in price levels by yesterday that were less than those of the preceding Wednesday. The El Paso Bondad location in the Rocky Mountain region noted a $1.30 per MMBtu decrease, the largest on the week in the Lower 48 States. El Paso Bondad averaged yesterday at $10 per MMBtu. The Henry Hub however showed a more modest decrease on the week of about $0.25 per MMBtu, trading yesterday at $13.52, or about 2 percent less than on Wednesday, October 12.

 

 

At the NYMEX, the price of the futures contract for November delivery at the Henry Hub increased by about 3 cents during the week to settle at $13.549 per MMBtu on Wednesday, October 19. Futures prices increased on Monday, October 17, as the market braced for Hurricane Wilma, the record 21^st storm of the hurricane season. After reaching $13.887 per MMBtu on Monday, the price of the November 2005 contract declined about 34 cents as the new projected storm path indicated that Wilma is expected to take a course towards Florida instead of the producing areas of the West and Central Gulf of Mexico. By contrast, prices of the futures contracts for delivery during the remaining months in the 2005-2006 heating season decreased roughly 13 to 19 cents or about 1 percent per MMBtu since last Wednesday. Despite the price decreases, contracts for delivery during the heating season traded yesterday at an average premium of about 37 cents to the Henry Hub spot price, with differences ranging up to 72 cents for the January delivery contract. The 12-month strip, or the average price for contracts over the next year, closed yesterday at just under $12 per MMBtu, a net increase of a little more than 4 cents on the week.

 

Recent Natural Gas Market Data

 

Estimated Average Wellhead Prices
	Apr-05	May-05	Jun-05	Jul-05	Aug-05	Sept-05
Price ($ per Mcf)	6.44	6.02	6.15	6.69	7.68	9.76
Price ($ per MMBtu)	6.27	5.86	5.99	6.51	7.48	9.50
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 as of October 14 totaled 3,062 Bcf, which is 1.8 percent above the 5-year average inventory level for the week according to EIA's Weekly Natural Gas Storage Report (See Storage Figure). Working gas in underground storage climbed past the 3,000 Bcf mark for the first time in 2005. The net addition to storage was 75 Bcf, which is about 34 percent above the 5-year average net injection of 56 Bcf and about 16 percent above the net injection of 64 Bcf during the report week last year. This marks the first time in 5 weeks, and the fourth time since June 3, 2005, that the weekly net change exceeded the 5-year average net increase, as current storage levels climbed to 53 Bcf more than the 5-year average. Furthermore, this is the first time since September 16, 2005, and the second time in the past 16 weeks that the net change exceeded last year's levels. During the report week, temperatures were moderate according to the number of degree days as measured by the National Weather Service (See Temperature Maps). Based on degree days in the Lower 48 States for the week ending October 13, only the Rocky Mountains, West South Central, and West North Central U.S. Census regions registered cooler-than-normal temperatures. Moderate temperatures, favorable economics, and possible industrial demand destruction owing to the elevated level of natural gas prices likely contributed to the increased level of injections for the week. The 6-month futures strip traded at a significant premium to the Henry Hub spot price throughout most of the report week, providing economic incentives to continue injecting gas into storage.

 

 

 

Other Market Trends:

Natural Gas Rig Count: The number of rigs drilling for natural gas in the United States was 1,262 as of Friday, October 14, 2005, according to Baker-Hughes Incorporated. The current number of rigs reflects a slight decrease from the record number of 1,273 set during the week ending September 30, 2005, and is more than 19 percent higher than the number of rigs drilling for natural gas during this week last year. Of the total rigs currently drilling in the United States, 85.2 percent are rigs drilling for natural gas. Although the percentage of total rigs drilling for natural gas is down from the record high of over 89 percent in June, it has remained over 85 percent for the past 5 weeks. Of the 1,262 natural gas rigs, 60 are located in the Gulf of Mexico, which is 2 more than last week's Gulf total. This rig count reflects a number of offshore rigs that were lost or damaged owing to recent hurricane activity in the Gulf of Mexico.

 

Current Assessment of Hurricane Impact on Gas Processing Plants: As of October 19, 2005, 30 natural gas processing plants in the coastal counties of Texas, Louisiana, Mississippi, and Alabama, with capacities equal to or greater than 100 million cubic feet per day, are active. These plants have a total capacity of 12.9 billion cubic feet per day (Bcf/d) and had a pre-hurricane flow of 8.7 Bcf/d. Current flows associated with the operating plants are 93 percent of the pre-hurricane volumes. In some cases, this flow may include volumes that bypass the plant. Another 16 processing plants in Louisiana and Texas, with capacities equal to or greater than 100 million cubic feet per day, are not active owing to the hurricanes. These plants have an aggregate capacity of 9.71 Bcf/d, and a total pre-hurricane flow volume of 5.45 Bcf/d. A number of inactive plants are operational, but are not operating owing to upstream or downstream infrastructure problems or supplies being unavailable. These operational inactive plants have a total capacity of 1.35 Bcf/d and had a pre-hurricane flow rate of 0.54 Bcf/d. A number of the inactive plants are expected to be operating within 4 weeks. The incremental available capacity at that time would be 2.23 Bcf/d with pre-hurricane flow of 1.08 Bcf/d.

Summary:

Spot prices decreased on the week at almost all market locations. While the November contract price increased, the futures prices for delivery in the coming heating season decreased slightly but continue to carry a premium over current cash prices. Working gas in underground storage as of October 14 has exceeded 3 Tcf and was 1.8 percent above the 5-year average.

 

Short-Term Energy Outlook