Natural Gas

Overview: Thursday, March 16 (next release 2:00 p.m. on March 23, 2006)

Since Wednesday, March 8, natural gas spot prices have risen at virtually all market locations in the Lower 48 States, despite some decreases during yesterday's trading. For the week (Wednesday-Wednesday), prices at the Henry Hub increased 62 cents, or about 10 percent, to $7.10 per MMBtu.Yesterday (March 15), the price of the NYMEX futures contract for April delivery at the Henry Hub settled at $7.143 per MMBtu, increasing roughly 50 cents, or more than 7 percent, since last Wednesday. Natural gas in storage was 1,832 Bcf as of March 10, which is about 60 percent above the 5-year average. The spot price for West Texas Intermediate (WTI) crude oil increased $2.05 per barrel, or about 3 percent, on the week to $62.11 per barrel or $10.71 per MMBtu.  

Prices:

Spot prices increased since last Wednesday, March 8, at virtually all market locations in the Lower 48 States in a break from the generally downward trend since mid December 2005. The return of cold temperatures after the weekend and climbing crude oil prices likely contributed to the strength in natural gas prices. Yesterday's price decreases at most market locations were not enough to offset the sometimes substantial increases that occurred during the week. Overall, the price increases ranged mostly between 34 and 72 cents per MMBtu on the week. The largest price increases, averaging 83 cents per MMBtu, occurred in the Northeast, where prices rose by as much as 15.5 percent. Prices at the New York citygate rose 98 cents per MMBtu or about 14 percent, while prices at the Dracut location increased $1.07 per MMBtu or 15.5 percent since last Wednesday, March 8. In the gas-producing States bordering the Gulf of Mexico, price increases were more modest, rising on average by 70 cents. The Henry Hub spot price increased 62 cents per MMBtu on the week, while other Louisiana market locations recorded average increases of 72 cents or 12 percent. As of yesterday, prices at most market locations in the Lower 48 States were between 5 and 10 percent lower than last year at the same time.  

At the NYMEX, the price of the futures contract for April delivery at the Henry Hub increased to $7.143 per MMBtu, which is an increase of about 50 cents per MMBtu since last Wednesday, March 8. Similarly, prices for the futures contracts through the 2006 injection season (April through October) also increased, rising about 38 cents per MMBtu or about 5.3 percent. Futures prices remain in contango, and prices for the futures contracts for delivery through January 2007 were successively higher than each preceding month. Futures prices for delivery during the summer months of 2006 are somewhat high for this time of year, as May 2006 through September 2006 contract prices average 3 percent higher than those for the equivalent futures contracts at this time last year. These relatively high prices during the summer months reflect expectations of a continually tight natural gas market, despite the large volumes of working gas remaining in storage. The 12-month strip, which is the average of the monthly futures prices for the coming year, settled at $8.673 per MMBtu, or about 4 percent higher than last Wednesday, March 8. The average price differential between the futures contract prices for delivery over the next 12 months (April 2006-March 2007) and the Henry Hub spot price was $1.57 per MMBtu in yesterday's trading, or 30 cents lower than last week, when the Henry Hub price premium for the 12 months averaged $1.87 per MMBtu.  

Recent Natural Gas Market Data

Storage:

Working gas in storage was 1,832 Bcf, which is 688 Bcf or 60.1 percent, above the 5-year average, as of Friday, March 10, according to EIA's Weekly Natural Gas Storage Report (See Storage Figure). The implied net withdrawal was 55 Bcf for the week, which is 31 percent less than the 5-year average withdrawal of 79 Bcf and about 46 percent lower than last year's withdrawal of 101 Bcf. The West region recorded an above-average withdrawal, consistent with the colder-than-normal temperatures that prevailed in the Pacific Census Division during the report week. In the Producing region, on the other hand, the warmer-than-normal temperatures contributed to a net addition of 5 Bcf. This week's addition in the Producing region is the eighth since the beginning of the current heating season, which is the highest number of occurrences for net additions to storage in the region between November and March in the entire weekly data series since January 1994. For the week ended March 9, the coldest temperatures prevailed throughout regions along the northern Atlantic coast, where temperatures were 2 percent to 7 percent colder than normal as measured by the National Weather Service heating degree days (HDDs). (See Temperature Maps) Warmer-than-normal temperatures across the South and in the East North Central Census Division-ranging from 4 percent to 63 percent above normal-offset the cold across much of the East, resulting in average temperatures for the entire Lower 48 States that were only about 5 percent colder than normal. As of yesterday, contracts for delivery during the next heating season (November 2006 - March 2007) were trading at an average premium of $3.11 per MMBtu relative to the Henry Hub, which helps explain the relatively low withdrawal of gas from storage.    

Other Market Trends:

Minerals Management Service Holds Lease Sale 198 in the Central Gulf of Mexico: The Minerals Management Service (MMS) conducted Central Gulf of Mexico Lease Sale 198 on Wednesday, March 15, 2006, in New Orleans, Louisiana. The lease sale received 707 bids on 405 tracts, and generated $588,309,791 in high bids from 82 companies for oil and natural gas leases in the Federal Gulf of Mexico. The amount of revenue attributed to high bids in this year's Central Gulf lease sale is about 60 percent higher than last year's Central Gulf lease sale, which collected $353,961,798 in high bids from 80 companies for oil and natural gas leases. The total of all bids in this year's sale was $978,310,887, which represents a 38 percent increase over last year's sale.According to MMS, the increased bidding activity can be partly attributed to the current high prices for oil and natural gas. The lease sale area covers 4,040 blocks amounting to approximately 21.3 million acres in the Central Gulf of Mexico Outer Continental Shelf Planning Area offshore Alabama, Louisiana, and Mississippi. The blocks are located from 3 to about 210 miles offshore in water depths of 4 to more than 3,400 meters. MMS estimated the lease sale could result in the production of 276 to 654 million barrels of oil and 1.59 to 3.3 trillion cubic feet of natural gas. Before the sale becomes final and leases are awarded, each of the high bids on a block will go through an evaluation process to ensure the public receives fair market value.  

Natural Gas Transportation Update:

• Dominion Transmission took Camden Station located in West Virginia offline on Friday, March 10, because of a slip on the discharge line.Many stations were required to shut in until further notice.
• ANR Pipeline Company announced that it had to reduce available capacity on Friday by 50 MMcf per day to 620 MMcf per day owing to an unforeseen engine outage at the Havensville, Kansas, compressor station.
• Northern Natural Gas announced on Tuesday that the repairs to the Jal-to-Pinnacle-Lea portion of the Hobbs 26 under the force majeure issued earlier this month are due to be completed at noon on Wednesday, March 15.
• In an update as of March 14, Matagorda Offshore Pipeline System (MOPS) announced that because of the force majeure declared earlier this month, pigging operations cannot be conducted.Furthermore, MOPS is now experiencing higher liquids on the pipeline. There are three points affected by this update.Until further notice, those points may continue to flow, but liquids production will be unavailable.  

 

Short-Term Energy Outlook