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Natural Gas Weekly Update Archive

for week ending November 2, 2005  |  Release date:  November 3, 2005   |  Previous weeks

Overview: Thursday, November 3 (next release 2:00 p.m. on November 10)

Since Wednesday, October 26, natural gas spot prices decreased at virtually all market locations in the Lower 48 States, with decreases exceeding $4 per MMBtu at most markets. On Wednesday, November 2, prices at the Henry Hub averaged $10.84 per MMBtu, decreasing $3.83 per MMBtu, or more than 26 percent, since the previous Wednesday. The NYMEX futures contract for November delivery at the Henry Hub expired at $13.832 per MMBtu, on Thursday, October 27, declining about 36 cents or nearly 3 percent since becoming the near-month contract on September 29. The futures contract for December delivery has declined $2.08 per MMBtu, or about 15 percent since becoming the new near-month contract on Friday, October 28, settling at $11.604 per MMBtu yesterday (November 2). Natural gas in storage was 3,168 Bcf as of October 28, which is about 2.6 percent above the 5-year average. The spot price for West Texas Intermediate (WTI) crude oil decreased $1.10 per barrel, or about1.8 percent, on the week (Wednesday-Wednesday) to $59.75 per barrel or $10.30 per MMBtu.




Spot prices decreased at virtually all market locations since last Wednesday, October 26, although prices remain near record levels for this time of the year at many locations. Trading during the week (Wednesday- Wednesday) was characterized by steep price declines at most market locations each day through Tuesday, November 1, although prices recovered somewhat yesterday. Moderate temperatures in most of the Lower 48 States, declining injection demand for natural gas, falling crude oil prices, and the ongoing restoration of natural gas production in the Gulf of Mexico likely contributed to the price declines. Shut-in natural gas production fell to 5.04 Bcf per day as of Wednesday, November 2, from its level the previous Wednesday of 5.56 Bcf per day. Cumulative shut-in production since August 6, 2005, reached 391 Bcf as of November 2, which is equivalent to 10.7 percent of yearly natural gas production in the Gulf of Mexico. Meanwhile, injection demand for natural gas may be diminishing as some storage operators approach the capacity constraints of their storage facilities. Prices fell more than $4 per MMBtu, or about 26 to 42 percent, at most market locations in the Lower 48 States since last Wednesday. The steepest declines occurred principally in the East and South Texas regions where declines averaged more than $4.63 per MMBtu, while the Rocky Mountains region had the smallest declines of about $3.91 per MMBtu. Price decreases in the Northeast region averaged about $4.57 per MMBtu or about 29 percent, as prices at the New York and Algonquin (serving New England) citygates fell to $11.43 and $11.43 per MMBtu, respectively. Despite these wide-ranging declines throughout the Lower 48 States, lingering uncertainty in the natural gas market about the sufficiency of supplies and the severity of the upcoming winter appear to be providing support to the elevated price level, as prices at most market locations remain about $1 to $4, or about 10 to 58 percent, above last year's level at this time. Prices at the Henry Hub on Wednesday, November 2 exceeded last year's level by $3.96 per MMBtu or about 58 percent.



At the NYMEX, the price of the futures contract for December delivery at the Henry Hub decreased about $2.46 per MMBtu or about 17 percent since Wednesday, October 26, to $11.604 per MMBtu. Prices for the other futures contracts through March 2006 decreased between 14 and 15 percent, or about $1.94 to 2.21 per MMBtu during the same period. The 12-month futures strip (December 2005 through November 2006) traded at a discount of 16 cents per MMBtu relative to the Henry Hub spot price, averaging $10.67 per MMBtu as of Wednesday, November 2. Nevertheless, the futures contract prices for the upcoming heating season months (December 2005 through March 2006) are as much as $1.32 per MMBtu higher than the Henry Hub spot price. Differentials of this magnitude between the spot price and the futures contract prices could provide suppliers economic incentives to continue injecting gas into storage through the remainder of the month, increasing injection demand for natural gas on the spot market.


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 totaled 3,168 Bcf as of Friday, October 28, which is 2.6 percent above the 5-year average inventory level for the report week, according to EIA's Weekly Natural Gas Storage Report (See Storage Figure). During a week in which hurricane-related production shut-ins continued, the implied net injection of 29 Bcf was 15 percent less than the 5-year average of 34 Bcf and 29 percent less than last year's injection of 41 Bcf. As of October 28, stocks were lower than last year's levels by 119 Bcf. During the report week, cooler-than-normal temperatures in the New England, Middle Atlantic, and East North Central Census regions contributed to some temperature-driven swing demand (See Temperature Maps), which may have diverted supplies that might otherwise have been injected into storage. Also, the continuation of some shut-in production from the Gulf of Mexico caused by Hurricane Ivan reduced supplies for the week by an estimated 38 Bcf, based on data from the Minerals Management Service.





Other Market Trends:

Court Upholds Two FERC Orders Regarding Pipelines: The U.S. Court of Appeals for the District of Columbia Circuit upheld two FERC orders on Friday, October 28, that affect pipeline shippers. The first decision involved the elimination of a contract term cap for incumbent pipeline shippers who exercise their rights of first refusal (ROFR) to retain transportation capacity under expiring contracts. Under previous ROFR rules, a pipeline shipper whose contract was set to expire had to match a competitor's bid for a term of up to 5 years in order to keep his capacity. In 2002, FERC eliminated the 5-year contract term cap so shippers must now match the term regardless of length. The American Gas Association, which represents utilities and challenged the 2002 FERC order, argued that the term cap was necessary to prevent monopoly power upon contract expiration. The second decision by the federal appeals court upheld FERC's order to give shippers greater flexibility in transporting gas in an amount exceeding their contract demand. Regarding both decisions, the court said that FERC gave satisfactory explanations for its decisions and thus any petitions for review are denied.


Natural gas spot prices fell at virtually all market locations in the Lower 48 States since last Wednesday, October 26. Prices for the futures contracts for the upcoming winter (December 2005 through March 2006) continued to trade at a premium to the Henry Hub spot price. Working gas in storage was 3,168 Bcf, which is about 2.6 percent above the 5-year average.



Short-Term Energy Outlook