Overview: Thursday,
December 15, 2005 (next release 2:00 p.m. on December 22)
A
drop in temperatures across most of the Lower 48 States helped push natural gas
spot and futures prices up on the week (Wednesday to Wednesday, December 7-14). The spot price at the Henry
Hub increased by $0.85 per MMBtu, or about 6 percent, for the week, to $14.80 in yesterday’s
(Wednesday, December 14) trading.
On the New York Mercantile Exchange (NYMEX), the futures contract for
January delivery added 97.9 cents to its settlement price of 1 week ago,
settling yesterday at $14.679 per MMBtu. The Energy Information Administration (EIA)
reported that natural gas inventories in underground storage were 2,964 Bcf as of Friday, December 9,
which is 3.7 percent greater than the previous 5-year average. The spot price for West Texas Intermediate
(WTI) crude oil increased by $1.65 per barrel, bringing the WTI spot price in
yesterday’s trading to $60.86 per barrel, or $10.49 per MMBtu, an almost 3 percent gain
on the week.
As
frigid temperatures prevailed across much of the Lower 48 States during the
report week, spot prices increased at virtually all market locations. The
colder-than-normal temperatures, coupled with numerous Operational Flow Orders
(OFO), low linepack, and similar constraints that
remained in place for a portion of the week, resulted in price increases of an
average of 42 cents at most market locations, and as high as $1.08 per MMBtu. The Henry Hub spot price averaged $15.40 per MMBtu in Tuesday’s trading (December 13), reaching the
second highest price on record for this market location, second only to the
$18.85 per MMBtu price on February 25, 2003. Factors
contributing to the high prices include the high prices for petroleum products,
the continued shut-ins of natural gas production in the Gulf of Mexico region,
and the extremely cold temperatures. As
of Monday (December 12), shut-in natural gas production exceeded 2.3 Bcf per day, as reported by the Minerals Management Service
(MMS). Cumulative “lost” production since
late August is 526.2 Bcf, which is more than 9
percent of what estimated U.S. production would have been during that
time. Significant price increases
materialized since last Wednesday, December 7, despite yesterday’s falling
prices, ranging between 16 cents and $1.36 per MMBtu.
The spot price for delivery at Dominion CNG recorded the highest weekly increase
in the Nation, rising $1.08 per MMBtu
to $15.32. On a regional basis, the largest week-on-week price increases were
recorded in the California and the Northeast market locations, where prices
rose by an average of 78 and 72 cents per MMBtu, respectively. Price
increases tended to be somewhat smaller in Louisiana and the East and South
Texas regions, ranging on average between 36 and 49 cents per MMBtu. Some price decreases also were recorded at the Midcontinent and Midwest market locations, where temperatures
were above normal, leading to declines of up to $1.20 per MMBtu.
The spot prices in the Lower 48 States are more than 85 percent higher than
last year at this time.
At the NYMEX, settlement prices of the futures
contracts for delivery during the rest of the heating season (January through
March) increased on the week by an average of 92 cents, while prices for months
through the next heating season increased from nearly 10 to nearly 30 cents per
MMBtu. Despite the
increases, prices for the January-March delivery contracts remain below the
Henry Hub spot price. Until December 5,
the spot price was below the futures contract prices. This shift in relative prices suggests that
market participants expect prices to decline from current levels, and it shifts
the relative economics of current supplies and reliance on storage withdrawals.
In yesterday’s trading, the January 2006 futures contract settled at $14.679
per MMBtu, decreasing about 70 cents, or about 5
percent from the day before (December 13), when the January 2006 futures
contract reached an all-time high of $15.378 per MMBtu.
On the week, however, the January 2006 futures contract increased $0.979, or
more than 7 percent. Similarly, the February and March contracts rose $0.918
and $0.866 on the week, respectively, to settlements yesterday of $14.728 and $14.602
per MMBtu. The 12-month strip, which is the average price for
futures contracts over the next 12 months, closed yesterday at $12.034, an
increase of 32 cents, or almost 3 percent on the week.
Recent
Natural Gas Market Data
|
Estimated Average Wellhead Prices |
||||||
|
|
Jun-05 |
Jul-05 |
Aug-05 |
Sept-05 |
Oct-05 |
Nov-05 |
|
Price
($ per Mcf) |
6.15 |
6.69 |
7.68 |
9.76 |
10.97 |
9.54 |
|
Price
($ per MMBtu) |
5.99 |
6.51 |
7.48 |
9.50 |
10.68 |
9.29 |
|
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 underground storage decreased to 2,964 Bcf as
of Friday, December 9, 2005, according to EIA’s Weekly Natural Gas Storage Report (See Storage Figure). Inventories are now 3.7 percent or 107 Bcf above the 5-year average of 2,857 Bcf. The implied net withdrawal for the week of
202 Bcf, the largest withdrawal so far this heating
season, is 94 percent above the 5-year average of 104 Bcf
and more than three times above last year’s net withdrawal of 65 Bcf. This is the
second highest weekly withdrawal during the month of December since 1994 (when
weekly data reporting began). The
highest December weekly withdrawal was 208 Bcf for
the week ending December 29, 2000.
Extremely cold temperatures across the country contributed to the large
decrease in working gas stocks. As
measured by the National Weather Service’s heating degree days for the week
ending December 8, temperatures were more than 20 percent colder than normal in
all regions of the United States except for the Pacific region which was 8
percent colder than normal. For the
country as a whole, temperatures were 32 percent colder than normal (See
Temperature Maps).
Shifts in relative spot and futures natural gas prices also contributed
to the large withdrawal this week. Spot
prices at the Henry Hub were higher than natural gas futures prices during this
report week for the first time since late October. Higher relative spot prices offer economic
incentive to withdraw gas from storage.
Average monthly withdrawals for the entire month of December from 2000
to 2004 were 530 Bcf.
The monthly withdrawal as of December 9, 2005, is about 219 Bcf.
Other Market Trends:
EIA Releases Energy Projections Through
2030:
On December 12, 2005, the Energy Information Administration (EIA)
published on its website the early release of the Annual Energy Outlook 2006
(AEO2006), which presents a midterm
forecast and analysis of U.S. energy supply, demand, and prices through 2030. According to the report, world oil supplies
are assumed to be tighter with higher crude oil prices than in last year’s
outlook. World crude oil prices are projected to fall from current levels to
about $47 per barrel in 2014 in constant 2004 dollars before rising to $54 per
barrel in 2025 and $57 per barrel in 2030.
Average natural gas wellhead prices are projected to fall to $4.46 per
thousand cubic feet (MMcf) by 2016 as new supplies
and new import sources become available.
After 2016, the average wellhead prices are projected to increase to
over $5.90 per MMcf in 2030. Natural gas consumption is projected to grow
from 22.4 trillion cubic feet (Tcf) in 2004 to 27.0 Tcf in 2024 and then decline to 26.9 Tcf
in 2030. The report cites the major
contributors to growth in U.S. natural gas supplies as unconventional
production, the Alaska pipeline, and liquefied natural gas imports. Unconventional natural gas is projected to
account for 45 percent of domestic U.S. natural gas production in 2030. Total energy demand is projected to increase
from 100.3 to 133.9 quadrillion Btu between 2004 and 2030, an average annual
increase of 1.1 percent, in a scenario where the U.S. economy grows at an
average annual rate of 3.0 percent. The
projections presented in this early release AEO2006
are based on results from the EIA’s National
Energy Modeling System. The full publication will be released in February 2006.
Summary:
Natural gas spot and futures prices rose significantly
as colder-than-normal temperatures put an upward pressure on an already tight
natural gas market. While both spot and futures prices increased on the week,
futures prices for delivery this winter continue at a discount to the Henry Hub
spot price. Meanwhile, according to EIA’s
latest weekly storage report, the implied net withdrawal for the report week
brought the natural gas stocks to 2,964 Bcf, which is
3.7 percent higher than the 5-year average.
