for week ending June 21, 2006 | Release date: June 22, 2006 | Previous weeks
Overview: Thursday, June 22 (next release 2:00 p.m. on
June 29, 2006)
Since
Wednesday, June 14, natural gas spot prices increased at most market locations
in the Lower 48 States. On Wednesday, June
21, prices at the Henry Hub averaged $6.51 per MMBtu, increasing 41 cents per
MMBtu, or about 7 percent, since the previous Wednesday. The NYMEX futures contract for July delivery
at the Henry Hub settled at $6.588 per MMBtu, on Wednesday, June 21, posting a
slight decline from the settlement price of $6.590 last Wednesday, June 14. Natural gas in storage was 2,476 Bcf as of June
16, which is almost 35 percent above the 5-year average. The spot price for West Texas Intermediate
(WTI) crude oil increased 95 cents per barrel, or about 1 percent, on the week (Wednesday-Wednesday)
to $70.07 per barrel or $12.08 per MMBtu.
Spot
prices increased at most market locations since last Wednesday, June 14, between
29 and 77 cents per MMBtu.Increased cooling
load resulting from the hot temperatures that prevailed in most of the Lower 48
States likely contributed to the price hikes. Price increases were most pronounced in the Northeast, where large
swings from relatively mild high temperatures in the 70s to highs in the 90s
contributed to average price increases of about 63 cents per MMBtu, or 10
percent. Furthermore, the largest price
increase since last Wednesday, June 14, occurred at the New York citygate,
where prices climbed 77 cents per MMBtu, or about 12 percent, to $7.32 per
MMBtu. Elsewhere, price hikes were widespread
but less pronounced without a strong, discernible geographic pattern. Despite the price increases since last
Wednesday, June 14, prices are below last year's levels, with differences mostly
ranging between $0.65 and $1.18 per MMBtu, or about 10 to 16 percent. Prices at the Henry Hub are about 97 cents
per MMBtu or about 13 percent below last year's level. As of June 16, the level of working gas in
storage remains significantly above the 5-year average and last year's level at
this time, which likely is mitigating injection demand for natural gas. This year's lower price level doubtlessly
reflects an improved natural gas supply situation relative to last year at this
time.
At
the NYMEX, the futures contract for July delivery at the Henry Hub settled yesterday
(June 21) at $6.588 per MMBtu, declining less than 1 percent since Wednesday, June
14.Similarly, prices for the futures
contracts from August through November 2006 declined by less than a dime or
about 1 percent for the week. In contrast, the futures contracts for delivery
in the heating season months from December 2006 through March 2007 increased
from about 9 to 23 cents per MMBtu. These contrasting price movements on the
futures markets likely reflect the high level of working gas in storage at this
time, which temporarily may allow storage operators to defer their injections
into storage as the 3-month strip (July 2006 through September 2006) is trading
at a 30-cent premium to the Henry Hub spot price.However, owing to storage capacity
limitations and uncertainty about high temperatures or hurricane-related production
disruptions later this summer, the storage overhang may not persist through the
2006-2007 heating season.This is
reflected in the futures contract prices for the upcoming heating season months
(November 2006 through March 2007), which are about $3.53 per MMBtu higher than
the Henry Hub spot price on average.Overall, the 12-month futures strip (July 2006 through June 2007) traded
at a premium of $2.07 per MMBtu relative to the Henry Hub spot price, averaging
$8.57 per MMBtu as of Wednesday, June 21.Differentials of this magnitude between the spot price and the futures
contract prices provide suppliers strong economic incentives to inject gas into
storage.However, the elevated levels of
working gas stocks provide operators increased flexibility in the timing of
their injections into storage and the pattern of prices for future delivery
contracts during the next few months provide an incentive to delay some storage
injections.
Recent Natural Gas Market Data
Estimated Average Wellhead Prices |
||||||
|
Dec-05 |
Jan-06 |
Feb-06 |
Mar-06 |
Apr-06 |
May-06 |
10.02 |
8.66 |
7.28 |
6.52 |
6.59 |
6.19 |
|
Price
($ per MMBtu) |
9.76 |
8.43 |
7.09 |
6.35 |
6.42 |
6.02 |
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 totaled 2,476 Bcf as of Friday, June
16, which is about 35 percent above the 5-year average inventory level for the
report week, according to EIA's Weekly Natural Gas Storage Report (See Storage Figure).
During the week, the implied net injection of 79 Bcf
was 17 percent less than the 5-year average of 95 Bcf
and equal to last year's injection of 79 Bcf. As of
June 16, stocks exceeded last year's level by 451 Bcf and
the 5-year average by 643 Bcf. With working gas levels well above historical
levels for this time of year, lingering uncertainty about the sustainability of
the current price level may have contributed to the below-average injection.
During the report week, temperatures in the Lower 48 States were moderate.However, cooling degree days were above
normal in the western and southern regions of the Lower 48 States. Overall, cooling degree days (CDD) were
about 4 percent below normal on average in the Lower 48 States. (See
Temperature Maps)
Other Market Trends:
EIA Releases the IEO2006: On June 20, the Energy Information Administration
(EIA) released its International Energy
Outlook 2006 (IEO2006), which provides
an assessment of international energy markets with projections of worldwide
energy production and consumption by fuel type and region through 2030. The
report also discusses projections of energy-related carbon dioxide emissions by
source. Natural gas is expected to trail
coal as the fastest growing primary energy source. Consumption of natural gas
is expected to increase from 95 trillion cubic feet (Tcf) in 2003 to 182 Tcf in
2030, amounting to an average increase of 2.4 percent per year. The natural gas
share of total world energy consumption (on a Btu basis) is expected to grow
from 24 percent in 2003 to 26 percent in 2030. The IEO2006 projects that, as
was historically the case, the volume of natural gas reserves worldwide will
for the most part trend upwards. Natural gas production is expected to increase
in both the OECD and non-OECD countries over the projection period. In the OECD
nations, however, the increase in demand is expected to outpace the increase in
supply, and thus the OECD countries increasingly will rely on imports to meet
natural gas demand, with a growing percentage of supplies in the form of LNG.
OECD countries will rely on natural gas produced in other parts of the world to
meet more than one-third of their natural gas consumption in 2030, up from 22
percent in 2003. In 2004, there were 12 LNG exporting countries; however,
the number of exporting countries is expected to increase. Furthermore, the
number of LNG import facilities also is increasing as more countries install
the necessary infrastructure. The
regional growth rate of natural gas demand in North America is expected to be at
a slower rate than in the past owing to the higher prices and concerns regarding
supply.
FERC Announces Policy on Natural Gas Quality
and Interchangeability: The Federal Energy Regulatory Commission
(FERC) released a policy statement on June 15, 2006, that addresses the
increasing number of disputes over natural gas quality and interchangeability.Although FERC will continue to review these
disputes on a case-by-case basis, the policy offers five principles the
Commission will use in order to meet the needs of consumers while assuring safe
and reliable operation of interstate natural gas pipelines.The five principles relating to gas quality
and interchangeability are:
Interchangeability becomes an issue
when producers or shippers use natural gas of a different quality standard as
substitutes for the gas normally burned by an end-use customer. As explained in a recent EIA special report, quality standards vary
from pipeline to pipeline based on the pipeline system's design, its downstream
interconnecting pipelines, and its customer base. Certain elements such as hydrogen sulfide,
carbon dioxide, nitrogen, water vapor, and oxygen, as well as particulate
solids and water must be removed by gas processing equipment because they can
impact downstream pipelines or gas-burning equipment. As natural gas pricing has transitioned to a
heat-content basis (per million Btu), however, producers have an economic
incentive to increase the Btu content of the gas by decreasing the amount of
natural gas liquids extracted. Also, the
increasing capacity at liquefied natural gas import facilities has raised
interchangeability concerns in recent years since the Btu content of the
regasified gas from some source countries may be higher than pipeline quality
standards.
FERC
Issues Final Rule on Market-Based Rates for Interstate Natural Gas Storage
Facilities:The Federal Energy
Regulatory Commission (FERC) finalized a rule on June 15, 2006, to encourage
natural gas developers to seek authority to charge market-based rates for
storage services. According to FERC, the
rule, which implements provisions of the Energy Policy Act of 2005, would
provide greater incentives for the development of new natural gas storage
capacity and reduce price volatility. The rule provides two options for natural gas storage developers. First, the rule expands the definition of the
relevant product market for storage to include non-storage products such as
available pipeline capacity, local gas production, and liquefied natural gas
terminals. FERC currently requires applicants to demonstrate that they lack
significant market power in a relevant market. By expanding the definition, FERC recognizes that non-storage products
and services may reduce an applicant's ability to exercise market power. Secondly, the rule allows an applicant to
charge market-based rates in certain circumstances without demonstrating lack
of market power as long as the added storage capacity is in the interest of the
public and the customers are adequately protected from market-power
manipulations.
Natural Gas Transportation Update: