Natural Gas

Overview: Thursday, April 20 (next release 2:00 p.m. on April 27, 2006)

High crude oil prices and increasing cooling demand in some regions contributed to natural gas spot prices climbing more than 10 percent at trading locations in the Lower 48 States since Wednesday, April 12. On the week (Wednesday-Wednesday, April 12-19), the Henry Hub spot price rose 93 cents per MMBtu to $7.72. At the New York Mercantile Exchange (NYMEX), the futures contract for May delivery rose in each trading session this week, gaining $1.384 per MMBtu to close at $8.192 per MMBtu yesterday (April 19). Net storage injections continued for the second week this refill season. Working gas in storage as of Friday, April 14, increased to 1,761 Bcf, which is 62.6 percent above the 5-year (2001-2005) average. The spot price for West Texas Intermediate (WTI) crude oil increased $3.54 per barrel on the week to $72.07, or $12.43 per MMBtu.

 Prices:

Spot prices moved higher in three of the four trading sessions this week (trading did not take place on Friday, April 14 in observance of Good Friday), as new air-conditioning load, particularly in Florida and the Southwest, and increasing oil prices overshadowed perceived ample supplies in storage. The Henry Hub spot price on Wednesday, April 19, increased to its highest level since February 8, averaging $7.72 per MMBtu, which was 14 percent higher on the week. With temperatures reaching over 100 degrees in parts of the Southwest, other trading locations in producing areas along the Gulf Coast and in West Texas registered similar price increases ranging from $0.74 to $1.10 per MMBtu. Despite relatively mild temperatures, prices in the Northeast gained an average of $0.98 per MMBtu as price increases in production regions carried over to consuming regions. The price for gas off Transcontinental Gas Pipe Line into New York City increased $0.99 per MMBtu to $8.20. At the Chicago citygate, the local distribution company Nicor Gas posted several advisories notifying customers that demand was low on its system and high linepack was limiting operational flexibility. Although demand was low in the market area, the price at the Chicago citygate increased $1.12 per MMBtu on the week to $7.17 per MMBtu, as buyers appeared willing to pay higher prices in order to comply with Nicor's transportation restrictions. Prices increased significantly in the Rockies and the West Coast as well, albeit slightly less so than in the East. The price at the PG&E citygate in Northern California increased $0.66 per MMBtu, or 11 percent, to $6.83. Trading locations in the Rockies registered an average increase of $0.67 per MMBtu to trade at an average of $6.20. Production shut-ins from last year's hurricanes continue, according to the Minerals Management Service (MMS). MMS yesterday said 1.3 Bcf is still off-line, bringing the total production shut in from the hurricanes to 730 Bcf.

At the NYMEX, the futures contract for May delivery ended trading yesterday at $8.192 per MMBtu, an increase of $1.384 on the week and the highest price for a near-month contract in more than 2 months. The May contract is now priced nearly 96 cents per MMBtu, or 13 percent, higher than the April contract's final settlement price of $7.233. Additionally, the May contract price as of yesterday is $1.44 per MMBtu higher than the final settlement price of $6.748 for the May 2005 contract. Prices for futures contracts for next winter (December 2006 - February 2007) increased nearly identically with the near-month's difference at an average of $1.38 per MMBtu. The 12-month strip, which is the average price for futures contracts over the next 12 months, closed yesterday at $10.14 per MMBtu, an increase of $1.34 since last Wednesday. Prices for contracts for next winter (December 2006 - February 2007) yesterday averaged $12.196 per MMBtu, considerably higher than the near-term contracts, and $4.48 more than the spot price at the Henry Hub. This price differential is providing economic incentives to either keep or place gas in storage for the upcoming winter.  

Recent Natural Gas Market Data

Storage:

Working gas in underground storage was 1,761 Bcf as of April 14, which is 62.6 percent above the 5-year average inventory level for the report week, according to EIA's Weekly Natural Gas Storage Report (See Storage Figure). The net change marks the second week of net injections this year. The implied net change for the week was a net injection of 47 Bcf, which is 42 percent more than the 5-year average net injection of 33 Bcf but 2 Bcf less than last year's net injection of 49 Bcf. As a result, the difference between current inventory levels and last year's decreased slightly to 425 Bcf, but the difference between current inventories and the 5-year average increased to 678 Bcf. The latest heating- and cooling-degree day statistics published by the National Weather Service for the period roughly coinciding with the week covered by this storage report show that weather-related gas demand was likely minimal, allowing for injections into storage. (See Temperature Maps) Only one of nine Census Divisions (Pacific) had greater-than-normal heating degree days (HDDs). HDDs were at 26 percent below normal for the United States as a whole. As to cooling degree days (CDDs), the West South Central was the only division that registered a significant level of degree days, likely creating demand for power to meet air-conditioning needs. Other divisions showed large percentage differences from normal in CDDs, but the actual CDD levels were relatively low compared with summer levels and therefore did not represent significant cooling demand.  

 Other Market Trends:

EIA Updates Website on Retail Gas Competition. The Energy Information Administration has updated its website on the status of natural gas residential choice programs to include information through December 2005. According to the website, Natural Gas Residential Choice Programs, enrollment in customer choice programs declined in 2005 for the second year in a row, with about 107,900 (3 percent) fewer households purchasing natural gas from third-party suppliers than in 2004 and about 298,600 (7 percent) fewer than in 2003. Participation percentages declined in all States but New York and Indiana in 2005, as concerns about high and variable natural gas prices apparently reduced interest and confidence in marketer pricing options. Still, about 11 percent or 3.9 million of the approximately 34 million residential gas customers with access to choice were buying gas from marketers as of December 2005. Twenty-one States and the District of Columbia have legislation or programs in place that allow residential consumers and other small-volume gas users to purchase natural gas from someone other than their traditional utility company. Georgia and Ohio have the most comprehensive programs, accounting for nearly two-thirds of the residential customer enrollment total in 2005. The number of marketers offering services to residential customers remained about the same as in 2004 (81 vs. 83), but considerably less than the 159 marketers participating in 2001.  

Natural Gas Transportation Update:

• ANR Pipeline Company announced that repairs to the Grand Chenier, Louisiana, liquid handling facility have been completed and handling capacity has been restored to the pre-hurricane level. The facility will return to service beginning May 1, 2006, and temporary arrangements for handling liquids by Plains Marketing LP will no longer be required.
• ANR Storage Company reported that, based on current and projected operational conditions, it will no longer limit rate schedule interruptible storage customers to their March 2 balances. ANR will allow interruptible injections and withdrawals subject to daily operational capacity, but will continue to monitor daily activity and balances throughout the injection season.
• A few inspections still remain to be performed on El Paso Natural Gas Company's pipeline system during April 2006. The company will be completing inspections on its North Mainline, which has a base capacity of 2.3 Bcf per day (which will be reduced to as low as 85 MMcf per day during the inspection), San Juan Crossover with a base capacity of 635 MMcf per day (reduced to as low as 30 MMcf per day), as well as several other lines including the South Mainline, which is designed to feed a total of 1.1 Bcf per day to markets between Texas and California.
• Early in the report week, Southern California Gas Company announced maintenance plans on Line 225 between April 18 and 20, 2006. The maintenance was expected to reduce the total available capacity at Wheeler Ridge by 740 MMcf to 140 MMcf. The planned maintenance impacted a number of pipelines, including Kern River Gas Transmission Company, which announced that as of April 13, linepack was high throughout its system. As of Wednesday, April 19, however, Kern River reported that linepack had returned back to low or normal in all areas of its system.
 

Short-Term Energy Outlook