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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
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.
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.
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