for week ending January 25, 2006 | Release date: January 26, 2006 | Previous weeks
Overview: Thursday, January 26 (next release 2:00 p.m. on February 2, 2006)
Natural gas spot prices continued
to decrease this week at all market locations as unseasonably mild temperatures
persist in most regions of the United States. For the week (Wednesday to Wednesday), the spot price at the Henry Hub
declined 35 cents per MMBtu, or about 4 percent, to trade at $8.50 per MMBtu
yesterday (January 25). The price of the
NYMEX futures contract for February delivery at the Henry Hub also decreased
this week. The contract closed yesterday
at $8.460 per MMBtu which is 23 cents per MMBtu, or about 3 percent, less than
last Wednesday's price. Natural gas in
storage as of Friday, January 20, decreased to 2,494 Bcf, which is 21.7 percent
above the 5-year average. The spot price
for West Texas Intermediate (WTI) crude oil dropped 16 cents per barrel since
last Wednesday to trade yesterday at $65.60 per barrel or $11.31 per MMBtu.
Natural
gas spot prices fluctuated slightly during this past week in response to short
periods of colder weather and winter-weather forecasts, but overall maintained
the decreasing trend that has continued since mid-December. All market locations recorded decreases since
last Wednesday, January 18, ranging from 2 cents to 65 cents per MMBtu with no
locations exceeding a decrease of more than 7 percent. The Henry Hub spot price traded yesterday
(January 25) at $8.50 per MMBtu, which is 35 cents, or about 4 percent, less
than the previous Wednesday. The largest
declines occurred in the Midwest this week with an average decrease of 57 cents
per MMBtu. The Chicago Citygate price
dropped below $8 per MMBtu for the first time since mid-November, but ended the
week at $8.03 per MMBtu. The Northeast,
which is the only region exhibiting prices over $9 per MMBtu, registered the
smallest decreases. Transco Zone 6 in
New York decreased only 2 cents since last Wednesday to close at $9.44 per
MMBtu yesterday. Although spot prices in
all regions are generally $1 to $3 per MMBtu higher than this time last year,
prices at most market locations are currently more than $1 lower than they were
in mid-August before hurricanes Katrina and Rita. These lower prices have been achieved despite
the continuing shut in of gas production in the Gulf of Mexico. According to the Minerals Management Service,
shut-in gas production was 1.656 Bcf per day as of Wednesday, January 25. The cumulative shut-in amount since August
26, 2005, was 609 Bcf, which is equivalent to more than 3 percent of yearly
U.S. production.
After
gaining almost 60 cents in trading last Thursday and Friday, the price of the
NYMEX futures contract for February delivery at the Henry Hub declined to close
yesterday (January 25) at $8.46 per MMBtu, which is about 23 cents or 3 percent
less than last Wednesday. This is the
lowest price for this contract since the beginning of June and the lowest price
for any contract through April 2009 currently listed on the NYMEX. Since becoming the near-month contract on
December 29, the February contract has declined $2.70 per MMBtu or about 25
percent. On that date, it held a $1.15
premium to the Henry Hub spot price and remained in contango for most of the
month. Yesterday's Henry Hub spot price,
however, exceeded the February contract price by 4 cents per MMBtu, which reduces
the economic incentive to keep natural gas in storage. The last trading day for the February
contract occurs tomorrow (January 27). All other contracts on the NYMEX through October 2006 have followed a
similar pattern with modest net decreases on the week, yet still exhibited
prices yesterday above the Henry Hub spot price. The March contract decreased 24 cents on the
week to settle at $8.637 per MMBtu yesterday and the April contract settled at
$8.722 per MMBtu. All NYMEX futures
contracts past October 2006 posted gains on the week. The 12-month strip, or the average price for
contracts over the next year, decreased less than 1 percent to close yesterday
at $9.366 per MMBtu.
Recent
Natural Gas Market Data
Estimated Average Wellhead Prices |
||||||
|
Jul-05 |
Aug-05 |
Sept-05 |
Oct-05 |
Nov-05 |
Dec-05 |
Price
($ per Mcf) |
6.69 |
7.68 |
9.76 |
10.97 |
9.54 |
10.02 |
Price
($ per MMBtu) |
6.51 |
7.48 |
9.50 |
10.68 |
9.29 |
9.76 |
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 decreased to 2,494 Bcf as of Friday, January 20, according to
EIA's Weekly Natural Gas Storage Report
(See Storage Figure). The current storage level is 445 Bcf, or 21.7
percent, above the 5-year average level of 2,049 Bcf and 191 Bcf, or 8.3
percent, above the storage level at this time last year. Although the implied net withdrawal of 81 Bcf
is the largest weekly withdrawal since the week ending December 23, it is 51 percent
lower than the 5-year average withdrawal of 165 Bcf and 62 percent lower than
the 213 Bcf withdrawn at this time last year.Continuing mild temperatures for this time of year across the entire
country decreased heating demand and contributed to the below average
withdrawal during the report week (See Temperature Maps). According to the National Weather Service,
temperatures, as measured by Heating Degree Days (HDD's) were 25 percent
warmer-than-normal for the week ending Thursday, January 19.In particular, the regions in the middle of
the country displayed some of the largest deviations from normal with the West
South Central Census Division, which contains Texas and Louisiana, at almost 40
percent warmer-than-normal and the East North Central Census Division,
containing the major market of Chicago, at 30 percent warmer-than-normal. The Northeast Census Division, which
exhibited the most modest price decreases as described above, also showed more
moderate temperature deviations at about 19 percent warmer-than-normal.
EIA Reports on Natural Gas
Processing Plants:The Energy Information
Administration released a report on Friday, January 20, 2006, describing the
natural gas processing industry and trends that have developed in this industry
over the past decade. The report, titled
"Natural
Gas Processing: The Crucial Link Between Natural Gas Production and Its
Transportation to Market," provides a discussion and analysis of
the role that processing plants play in the United States. Specifically, these plants remove
contaminants and liquids from natural gas produced at the wellhead in order to
meet pipeline quality standards necessary for transportation. The report notes that although this segment
of the natural gas industry usually does not receive much public attention, its
importance became apparent in the aftermath of hurricanes Katrina and Rita
which caused damage to several plants and forced pipelines to suspend flow to
several locations. There are currently
about 530 processing plants in the United States with a cumulative processing capacity
of more than 60.5 billion cubic feet per day. The greatest concentration of plants is in the Gulf Coast States of
Louisiana and Texas with 61 plants and 166 plants, respectively. Although the number of plants in the United
States has dropped about 27 percent since 1995, processing capacity has risen
by 49 percent. Reasons for this include
the addition and expansion of new larger plants, idling of older less efficient
plants, expanding natural gas production in Wyoming, and successful exploration
and development in Colorado. The report
also discusses natural gas processing cost recovery, the impact of industry
restructuring, and the outlook and potential of the natural gas processing
industry.
FERC Issues Final Rule Barring Market Manipulation: The Federal Energy Regulatory Commission (FERC) has
finalized a rule prohibiting energy market manipulation pursuant to its new
Energy Policy Act of 2005 authority. The Final Rule is largely unchanged from
the proposed rule the Commission issued in October, while providing
clarification of certain matters. The Energy Policy Act bars "any manipulative
or deceptive device or contrivance" in wholesale natural gas and electricity
commodity and transportation or transmission markets subject to the Commission's
jurisdiction. Under the Final Rule, it is unlawful for any entity, directly or
indirectly, in connection with the purchase or sale of electric energy or
natural gas or the purchase or sale of transmission or transportation services
subject to Commission jurisdiction: (1) to defraud using any device, scheme, or
artifice; (2) to make any untrue statement of material fact or omit a material
fact; or (3) to engage in any act, practice or course of business that operates
or would operate as a fraud or deceit. In addition to providing the FERC with
express authority to prohibit market manipulation, the Energy Policy Act
enhanced the Commission's civil penalty authority both by extending it across
all of the substantive provisions of Part II of the Federal Power Act and the
Natural Gas Act, and by increasing the maximum civil penalty under these
statutes to $1 million per day per violation. Those violating the Final Rule
will be subject to those penalties as outlined in the Commission's October 20,
2005, Policy Statement. FERC's Final Rule defines fraud as "... any action,
transaction, or conspiracy for the purpose of impairing, obstructing or
defeating the honest functioning of the market. Fraud is a question of fact
that is to be determined by all the circumstances of a case." Further, FERC
prohibits market manipulation by any entity, including governmental utilities
and other market participants, and not just jurisdictional market-based rate
sellers, natural gas pipelines, or holders of blanket certificate authority.
According to FERC's Final Rule, if any entity engages in manipulation and the
conduct is found to be 'in connection with' a jurisdictional transaction, the
entity is subject to the FERC's anti-manipulation authority. However, fraud and
manipulation in a non-jurisdictional transaction (such as a first or retail
sale) is not subject to the new regulations. The Final Rule, Prohibition of
Energy Market Manipulation, is effective upon its publication in the Federal Register on January 26, 2006.
The Federal Register notice is
available at http://frwebgate1.access.gpo.gov/cgi-bin/waisgate.cgi?WAISdocID=305977438195+0+0+0&WAISaction=retrieve.