Natural Gas

Overview: Thursday, February 2 (next release 2:00 p.m. on February 9, 2006)

Since Wednesday, January 25, natural gas spot prices have increased at most market locations in the Lower 48 States, with increases ranging between 20 and 67 cents per MMBtu or about 2 to 8 percent at most markets. On Wednesday, February 1, prices at the Henry Hub averaged $8.71 per MMBtu, reflecting an increase of $0.21 per MMBtu or about 2 percent since Wednesday, January 25. The futures contract for February delivery at the Henry Hub closed at $8.40 per MMBtu on Friday, January 27, falling about 6 cents per MMBtu since Wednesday, January 25. By February 1, the futures contract for March delivery at the Henry Hub increased about 9 cents per MMBtu or about 1 percent since Wednesday, January 25.Natural gas in storage was 2,406 Bcf as of January 27, which is about 28 percent above the 5-year average. Since January 25, the spot price for West Texas Intermediate (WTI) crude oil increased $1.01 per barrel, or about 1.5 percent to $66.61 per barrel or $11.48 per MMBtu.

Prices:

Natural gas prices increased at most market locations since Wednesday, January 25. Despite the continued prevalence of warmer-than-normal temperatures in many major northern market locations, falling temperatures and rising crude oil prices likely contributed to the increase in natural gas prices since last Wednesday, January 25. The sharpest price increases in the Lower 48 States since January 25 occurred principally in the Midwest region, where prices climbed about 43 cents per MMBtu or about 5 percent on average. The smallest increases since last Wednesday, January 25, occurred principally in the Northeast region, where prices climbed about 9 cents per MMBtu or about 1 percent on average, and decreased at several selected market locations including the New York citygate. Despite the price increases since Wednesday, January 25, natural gas prices have exhibited an overall pattern of decline since mid-December, as prices at the Henry Hub have fallen $6.69 per MMBtu or about 43 percent since they last peaked on December 13, 2005 at $15.40 per MMBtu. The unseasonably mild temperatures this winter undoubtedly contributed to this pattern of declining natural gas prices, as natural gas prices declined despite rising crude oil prices, which have increased more than 16 percent since December 19. During the nomination period for natural gas for February 2006 (January 25 to 31), bidweek prices decreased by more than 20 percent at most market locations, with the bidweek price at the Henry Hub falling $2.96 per MMBtu, or about 26 percent relative to the preceding month.

At the NYMEX, the price of the futures contract for February delivery at the Henry Hub closed at $8.40 per MMBtu on Friday, January 27, falling about $2.82 per MMBtu, or about 25 percent since becoming the near-month contract on December 29.Since January 25, the March futures contract climbed about 8 cents per MMBtu or 1 percent.Similarly, the 12-month futures strip (March 2006 - February 2007) increased about 11 cents per MMBtu or 1 percent since last Wednesday, January 25.The 12-month futures strip (February 2006 through January 2007) traded at a premium of $1.02 per MMBtu relative to the Henry Hub spot price, averaging $9.725 per MMBtu as of Wednesday, February 1.

 Recent Natural Gas Market Data

 Storage:

Working gas in storage decreased to 2,406 Bcf as of Friday, January 27, 2006, according to EIA's Weekly Natural Gas Storage Report (See Storage Figure), which is the highest stock level for this time of year since 1989. Storage levels were 529 Bcf, or 28 percent, above the 5-year average, and 296 Bcf, or 14 percent, above the storage level at this time last year.Working gas in storage also exceeded the 5-year (2001-2005) maximum by 18 Bcf. This week's implied net change of 88 Bcf sharply contrasts with the 5-year average net withdrawal of 172 Bcf, and last year's net withdrawal of 193 Bcf. The below-average net withdrawal likely resulted from continuing warmer-than-normal temperatures across much of the United States during the report week, especially in major population centers in the East and Midwest which account for much of the space heating demand (See Temperature Maps). New England and the Middle Atlantic Census Divisions experienced temperatures 24 percent and 25 percent warmer-than-normal, respectively, as measured by the National Weather Service heating degree days for the week ending January 26. Temperatures in the East and West North Central Census Divisions were about 24 and 26 percent, respectively, above average.Heating degree days in the Lower 48 States as a whole were nearly 22 percent below normal.

 Other Market Trends:

Natural Gas Transportation Update: Several natural gas pipeline companies gave updates this week on the operational status of facilities that were severely damaged by Gulf Coast hurricanes this past summer. Tennessee Gas Pipeline announced that it was notified by BP America that it does not plan to resume operation of the Grand Chenier gas processing plant, located in southwestern Louisiana. The plant had an operating capacity of 600 million cubic feet (MMcf) per day. Tennessee reported that about 135,000 dekatherms (Dth) per day can be delivered temporarily through an interconnect at the Targa Seahawk pipeline system and processed at the Lowry gas processing plant. Tennessee also announced that the Yscloskey processing plant is currently operating at a capacity of 600 MMcf per day, which is a utilization rate of about one-third of capacity. Gulf South Pipeline Company announced this week that three more locations in Louisiana are operational after sustaining damage from the hurricanes. One other Gulf South facility had been previously verified as operational and one remains offline. Tennessee Gas Pipeline announced that current shut-in production on its 500 and 800 lines as a result of damage from Hurricanes Katrina and Rita totals about 350,000 Dth/d. About 100,000 Dth/d is offline owing to pipeline damage and 250,000 Dth/d is shut in owing to third-party damage. Lastly, according to the February 1 update from the Louisiana Department of Natural Resources, only 19 of the 55 intrastate pipeline operators in Louisiana have reopened at full or close to full capacity following the hurricane.Sixteen operators have experienced partial system shut-ins or flow, and 20 remain shut-in.

Natural Gas Rig Counts:  The number of rigs drilling for natural gas increased to 1,247 for the week ending January 27, according to Baker-Hughes Incorporated. The number of natural gas rigs is about 17 percent greater than last year at this time, and about 44 percent higher than the 5-year average for the report week. The share of natural gas rigs drilling was about 84 percent of the total gas and oil rig count for the report week. While the number of rigs drilling in the United States as a whole is almost 4 percent higher than it was in mid-August, the number of rigs drilling in the Gulf of Mexico has decreased by 30 percent during the same time. According to the latest report, the number of rigs drilling in the Gulf of Mexico during the week was 69, the lowest number since the 68 rigs drilling in mid-1993. Since before the hurricanes, the number of natural gas rigs drilling in the Gulf of Mexico has decreased 60 percent, while the number of oil rigs drilling in the Gulf has almost doubled. As a result, the natural gas rigs share of total rigs drilling decreased to 46 percent for the report week from 81 percent in mid-August. The emphasis on oil drilling in the Gulf reflects better economic returns for crude oil compared with domestic natural gas prospects amid the lingering infrastructure problems in the region.  

Short-Term Energy Outlook