Overview:
Thursday, August 31 (next release 2:00 p.m. on September 7, 2006)
Natural
gas spot prices decreased significantly in the Lower 48 States this week as Tropical
Storm Ernesto moved north along the east coast, easing the threat to Gulf of
Mexico natural gas supplies. The spot
price at the Henry Hub dropped 79 cents, or about 11 percent this week
(Wednesday to Wednesday, August 23 to 30) to $6.40 per MMBtu. In its first day of trading as the near month
contract, the price of the New York Mercantile Exchange (NYMEX) futures
contract for October delivery settled at $6.29 per MMBtu yesterday (August 30),
which is 72 cents, or about 10 percent, less than last Wednesday’s price. As of Friday, August 25, 2006, natural gas in
storage was 2,905 Bcf or 12.4 percent above the 5-year average. The spot price for West Texas Intermediate
(WTI) crude oil declined $1.25 this week to $70.20 per barrel or $12.10 per
MMBtu yesterday.
Spot
prices this week responded to an increasing and then diminishing threat from
Atlantic storm activity. The upgrade of
Tropical Depression Five to Tropical Storm Ernesto last Friday, August 25, caused
a slight increase in prices at most market locations as uncertainty rose
regarding the storm’s path and potential impact on Gulf of Mexico natural gas
supplies. After the weekend, however,
prices dropped dramatically when it was clear that Ernesto instead would move
northeast, away from the Gulf. Coupled
with moderate late-August temperatures, the lack of a weather-related threat
caused prices to settle yesterday at levels between 65 cents and $2.16 per
MMBtu less than last Wednesday (August 23).
The spot price at the Henry Hub
was $6.40 per MMBtu yesterday, which is 79 cents or about 11 percent less than
last Wednesday. Elsewhere along the Gulf
Coast, prices in Louisiana and East Texas declined 85 cents and 90 cents on
average, respectively. The largest drops
were recorded in the Rocky Mountains, where the average spot price declined
from $6.20 per MMBtu last Wednesday to $4.86 per MMBtu yesterday. This includes the price at Colorado
Interstate Gas (CIG), which fell $2.16 this week to $3.94 per MMBtu. Weather likely had an impact on natural gas
demand in this region as temperatures were significantly cooler than normal
over the weekend and early this week, prompting a decrease in cooling
load. Temperatures also were notably
cooler than normal in the Northeast where price declines ranged between 65
cents and $1.02 per MMBtu. Despite these
decreases, the spot price in this region averaged $6.71 per MMBtu yesterday,
which was the highest regional average price.
The price of the New York
Mercantile Exchange (NYMEX) futures contract for October 2006 delivery at the
Henry Hub settled at $6.29 per MMBtu yesterday in its first day of trading as
the near-month contract. Despite
consistent increases during trading late last week (Wednesday – Friday), this
price is about 72 cents, or 10 percent, less than the level of last Wednesday
(August 23) because of considerable declines after the weekend. The September 2006 futures contract expired
on Tuesday, August 29, at $6.816 per MMBtu, which is about 6 cents less than
the price last Wednesday and 37 cents less than the price on July 28, 2006,
when the September 2006 contract became the near month contract. Looking ahead, the futures contracts for the
upcoming heating season (November 2006 to March 2007) decreased between 59
cents and 75 cents to average $9.964 per MMBtu yesterday, which is the first
time prices for the upcoming winter averaged below $10 since July 25, 2006. On the same date last year, the equivalent
contracts (November 2005 to March 2006) averaged $12.146 per MMBtu. These year-ago prices were heavily influenced
by the impact of Hurricane Katrina, which already had caused severe devastation
to Gulf Coast infrastructure at this time.
Despite falling prices this week, this heating season’s futures
contracts still hold significant premiums ranging between $1.86 (November 2006)
and $4.215 (February 2007) over yesterday’s Henry Hub spot price. The 12-month strip, which is an average of
futures prices for the coming year, decreased 56 cents per MMBtu
this week to average $8.814.
Recent Natural Gas Market Data
|
Estimated Average Wellhead Prices |
||||||
|
|
Feb-06 |
Mar-06 |
Apr-06 |
May-06 |
June-06 |
July-06 |
|
7.28 |
6.52 |
6.59 |
6.19 |
5.80 |
5.82 |
|
|
Price
($ per MMBtu) |
7.09 |
6.35 |
6.42 |
6.03 |
5.65 |
5.67 |
|
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 increased to 2,905 Bcf as of Friday, August 25, according to the
EIA Weekly Natural Gas Storage Report (See Storage Figure). The implied net injection during the week was
48 Bcf, which was about 28 percent lower than the 5-year average net injection
of 67 Bcf, and 18 percent lower than last year’s net injection of 58 Bcf. Despite the lower than normal net injection
this week, storage levels remain 12.4 percent above the 5-year average. The difference between the current inventory
level and the 5-year average fell to 320 Bcf this week, which is the smallest
difference during this year’s injection season (April 2006 to present). This margin has been declining since the week
ending May 12, 2006, when current inventories were 722 Bcf more than the 5-year
average. For the week ending August 24,
the weather for the Lower 48 States was about 17 percent warmer than normal, as
measured by cooling degree days (CDDs), according to the National Weather
Service (See Temperature Maps). This likely contributed to the below average
injection as demand for natural gas increased to meet power generation
needs. Areas in the Atlantic and East South
Central Census Divisions were particularly warm with 27 to 36 percent more
cooling degrees days than normal. Although
all regions had above normal cooling degree days for the week, the Mountain
Census Division was the only Division to also experience significant heating
degree days with 22.
Other Market Trends:
Minerals Management Service Announces a Proposed 5-Year Plan for the OCS and
the Associated Draft Environmental Impact Statement: The Department of the Interior’s Minerals Management Service (MMS) on
August 31 released a Federal Register notice, seeking comments on its proposed
5-year (2007-2012) leasing plan for the outer continental shelf (OCS) and the
associated draft environmental impact statement (DEIS). The proposed plan is available at http://www.mms.gov/ooc/press/2006/press0824.htm. MMS will accept
comments on the OCS oil and gas leasing plan
through November 24, 2006, and comments on the DEIS plan through November 22,
2006. The plan proposes 21 lease
sales in 7 of the 26 OCS planning areas.
This is part of the draft leasing plan MMS released in February
2006. The proposed plan includes a
special interest sale in areas off the coast of Virginia. MMS has estimated
that the complete set of planning areas contain a total of 67.9 billion barrels
of oil and 340.4 trillion cubic feet of natural gas in undiscovered technically
recoverable resources. Currently, more
than 85 percent of the OCS is under Presidential and Congressional moratoria,
and thus not available for energy development.
The current leasing program runs through June 30, 2007.
Natural Gas Transportation Update:
