for week ending July 26, 2006 | Release date: July 27, 2006 | Previous weeks
Overview: Thursday,
July 27 (next release 2:00 p.m. on August 3, 2006)
Since
Wednesday, July 19, natural gas spot prices have increased at all market
locations in the Lower 48 States. For
the week (Wednesday-Wednesday), prices at the Henry Hub increased by about 14
percent to $6.71 per MMBtu. Yesterday (July 26), the price of the NYMEX futures
contract for August delivery at the Henry Hub settled at $6.887 per MMBtu in
its next to last day of trading, increasing $1.025 or about 18 percent since
last Wednesday (July 19).Natural gas in
storage was 2,756 Bcf as of July 21, which is 21.6 percent above the 5-year
average. The spot price for West Texas
Intermediate (WTI) crude oil rose $1.03 per barrel or 1.4 percent on the week
to $73.82 per barrel or $12.73 per MMBtu.
As a result of the record-setting heat and correspondingly
higher power usage in many areas, natural gas spot prices increased at all
market locations since last Wednesday, July 19. The Edison Electric Institute
(EEI) reported yesterday that U.S. electricity demand reached an all-time
record last week. According to EEI, domestic utilities delivered 96,314
gigawatt hours (GWh) during the week ending July 22, surpassing the previous record,
which was set last year during the week ending July 23, 2005, by more than 1
percent. Price increases on the week varied widely, ranging between 49 cents
and $1.11 per MMBtu. Continued high crude oil prices also helped to boost the
spot prices. In a reaction to the high
heat-induced demand, prices at the Henry Hub increased 82 cents or about 14
percent to $6.71 per MMBtu since last Wednesday, while prices at other market
locations in Louisiana increased by an average of 76 cents per MMBtu. Also,
trading locations in Texas recorded similar increases on the week that averaged
78 cents per MMBtu, as a low pressure system, which was expected to become
Tropical Storm Chris, resulted in heavy rainfall, diminishing cooling load in
Texas and Louisiana. On the week, California recorded the highest regional
increase since last week, rising by an average 95 cents to $6.74 per MMBtu. Comparable
increases were recorded in the Northeast and the Rocky Mountains, where prices
increased by an average of 94 cents per MMBtu.
At
the NYMEX, the price of the futures contract for August delivery at the Henry
Hub increased $1.025 per MMBtu or about 17 percent since last Wednesday to
$6.887 per MMBtu in its second to last day of trading yesterday (July 26). The
August 2006 contract was about 75 cents or 12 percent per MMBtu higher than its
settlement price on June 29, its first full day of trading as the near-month
contract. Should the August 2006 contract close with a net gain over the month,
it would be only the second contract since the November 2005 contract closed on
October 27, 2005, to record a net gain at its closing.Similarly, all futures contracts through the
end of the next heating season (November 2006 - March 2007) increased by an
average of about 50 cents per MMBtu. Futures contract prices for each month
through the remaining months of 2006 and through February 2007 exceed the
current Henry Hub spot price by differences between $0.18 and $4.11 per MMBtu,
with the difference for each successive month larger that that of the preceding
month. Despite this week's increases, futures contracts prices for the
remainder of the refill season (August - October) remain below last year's
levels at this time. Nevertheless, the futures contract prices for delivery
during the upcoming heating season exceed last year's heating season contracts
by an average of $1.508 per MMBtu, as the November 2006-through-March 2007
contracts traded yesterday at an average of $10.202 per MMBtu, compared with
the November 2005-though-March 2006 strip's price of $8.694 per MMBtu on July
26, 2005.
Recent Natural Gas Market Data
Estimated Average Wellhead Prices |
||||||
|
Jan-06 |
Feb-06 |
Mar-06 |
Apr-06 |
May-06 |
June-06 |
8.66 |
7.28 |
6.52 |
6.59 |
6.19 |
5.80 |
|
Price
($ per MMBtu) |
8.43 |
7.09 |
6.35 |
6.42 |
6.03 |
5.65 |
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 2,756 Bcf as of Friday, July 21, according to EIA's Weekly
Natural Gas Storage Report. Working gas inventories are roughly 22 percent
above the 5-year average for the report week, and about 16 percent above the
level last year for the same week (See Storage Figure). For the first time in the weekly data for the
warmer months of May through September from 1994 to the present, this week's
report showed a net withdrawal of 7 Bcf for the week, contrasting sharply with
the 5-year average net injection of 65 Bcf and last year's net injection of 41
Bcf. This week's net withdrawal was driven largely by higher temperatures and
price incentives prevailing during much of the week. During the week ended July 20, the National
Weather Service reported temperatures that were 36 percent warmer than normal,
as measured by the cooling degree days (CDDs) (See Temperature
Maps). While hot temperatures are expected during the summer
months in the Lower 48 States, the average temperatures were extremely hot for
parts of the country, contributing to the already high cooling demand. For the
week ended July 20, temperatures in each Census Division were from 15 percent
to 70 percent higher than normal.Temperatures across the West North Central Census Division averaged 80
degrees, with highs reaching into triple digits.Second, the backwardation between spot and
futures prices that occurred between July 17 and 20 indicated supply tightness
in the spot market. Additionally, the lower prices for the August 2006 contract
presented significant arbitrage opportunities to replace gas withdrawn last
week with lower priced gas next month. Thus, there was strong incentive to
withdraw natural gas from storage, as opposed to purchasing it on the spot
market. Prospectively, with the 12-month strip trading at a $2.134 premium to the
Henry Hub spot price, the economic incentive to inject gas into storage remains
significant, absent additional episodes of price backwardation. However,
cooling demand will continue to compete with natural gas for storage during the
warmest days of the summer.
Other Market Trends:
Natural Gas Rig Count: According to
Baker-Hughes Incorporated, U.S. total rigs drilling reached a record high of
1,683 for the week ending July 21, 2006. The rig count for natural gas rigs was 1,381, which is second only to
the record of 1,389 set earlier this year on June 2. Compared with last year, the number of
natural gas rigs drilling exceeded the number of rigs by 153 rigs or about 12
percent. Although the count of gas rigs
running may have flattened recently, gas drilling has been on an upward trend
for more than 4 years, expanding from a low of 591 in April 2002. Indicative of
the relative economics of drilling in the United States, the natural gas rig
count has exceeded the oil rig count by a factor of at least 4 to 1
consistently since April 2001.
Natural Gas Transportation Update: