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Overview:
Thursday, September 7 (next release 2:00 p.m. on September 14, 2006) Since
Wednesday, August 30, natural gas spot prices have decreased at most market
locations in the Lower 48 States. For
the week (Wednesday-Wednesday), prices at the Henry Hub declined 67 cents, or
about 10 percent, to $5.73 per MMBtu. Yesterday (September 6), the price of the
NYMEX futures contract for October delivery at the Henry Hub settled at $5.994
per MMBtu, decreasing roughly 30 cents or about 5
percent since last Wednesday (August 30).
Natural gas in storage was 2,976 Bcf as of September
1, which is 12.1 percent above the 5-year average. The spot price for West Texas Intermediate
(WTI) crude oil decreased $2.45 per barrel, or 3.5 percent, on the week to $67.75
per barrel or $11.68 per MMBtu, which is its lowest level
since April 25, 2006. Moderate
temperatures and a favorable supply situation led to widespread declines in
natural gas spot prices in the Lower 48 States since last Wednesday, August 30. Additionally, the decrease in industrial
demand resulting from the holiday-shortened week provided further downward
pressure on prices. Prices at market locations east of the Rocky Mountain
region declined by an average of 59 cents per MMBtu. The Western market locations recorded smaller
declines that ranged between 16 and 35 cents per MMBtu. At trading locations in
the Rocky Mountain region, however, about half of the markets recorded
increases that averaged 70 cents, while the remaining locations in the region
exhibited only modest decreases on the week. Despite the increases for the
week, the lowest average regional price as of yesterday was recorded in the
Rockies ($5.08 per MMBtu), followed by the Midcontinent ($5.34 per MMBtu), and
West Texas ($5.38 per MMBtu). Prices at the Henry Hub decreased 67 cents, or
about 10 percent on the week, to $5.73 per MMBtu. Other market locations in
Louisiana decreased by an average of 67 cents or about 11 percent, to a
regional average price of $5.71 per MMBtu. Average prices in Florida and the
Northeast of $6.75 and $6.11 per MMBtu, respectively, were the highest in the
Nation as of yesterday, the only two regions to exceed the $6.00 per MMBtu
threshold. At
the NYMEX, the futures contract for October delivery at the Henry Hub exhibited
a price decrease of 30 cents per MMBtu or about 5 percent since last Wednesday
to $5.994 per MMBtu during its first week of trading as the near-month
contract. On Friday, September 1, the October contract settled at $5.877 per
MMBtu, which was the lowest price for this contract since January 5, 2005, and
the lowest near-month contract price since the August 2006 contract settled at
$5.862 per MMBtu on Wednesday, July 19. Similar to the October 2006 contract,
the November 2006 contract also decreased on the week, settling yesterday at
$8.019 per MMBtu, which was 24 cents or about 3 percent lower on the week. The price declines reflect the perception of
adequate supplies through the end of the refill season given the lack of a
significant hurricane threat so far this season, limited demand for cooling or
heating needs, and above average storage volumes. However, there appears to be a distinct
difference in market expectations and uncertainty between the near months and
the following ones. The difference
between the prices for the November and December 2006 contracts was $1.92 per
MMBtu, with the December contract trading yesterday at $9.939 per MMBtu. Further, with the exception of the January
2007 contract, all futures contracts from December 2006 through the end of the
next injection season (October 2007) increased on the week, recording average
increases of 14 cents or nearly 2 percent, reflecting expectations of potential
tightness in the market over the next year. The futures contract prices for delivery
during the upcoming heating season traded yesterday at an average of $9.921 per
MMBtu, which is $2.33 per MMBtu lower than the 2005-2006 heating season strip
price of $12.253 per MMBtu on September 6, 2005. Lack of hurricane activity and
a slight increase in production over the past year undoubtedly contributed to
the prices that are lower than those of last September. Recent Natural Gas Market Data
Working
gas in storage totaled 2,976 Bcf as of Friday, September 1, according to EIA’s Weekly
Natural Gas Storage Report. Working gas inventories are roughly 12 percent
above both the 5-year average and the level last year for the report week (See Storage Figure). The implied net injection during
the report week was 71 Bcf, which is about 2 percent
above the 5-year average net addition of 69 Bcf for
the week and 81 percent higher than the injection of 39 Bcf
reported for the same week last year.
During the week ended August 31, the National Weather Service reported
temperatures that were 11 percent warmer than normal, as measured by the
cooling degree days (CDDs) (See Temperature Maps).
However, the cooling degree days were
about 13 percent below last year’s level for the same report week. Despite the
above average volume of natural gas in storage and the more than 8 weeks
remaining in the injection season, the November-2006-through-March-2007 strip
traded yesterday at a premium of $4.20 per MMBtu relative to the Henry Hub spot
price. Other Market Trends: Updated 2006 Atlantic Hurricane Season
Projection: Forecasters at Colorado State University’s
Tropical Meteorology Project released a report on Friday, September 1, 2006,
which significantly reduces the 2006 seasonal forecast of Atlantic basin
hurricane activity. The report, by Philip
Klotzback and William Gray, titled, “Forecast of Atlantic hurricane activity
for September and October 2006 and seasonal update through August” projects
that this season will experience 13 tropical storms, 5 hurricanes and 2 intense
hurricanes of Category 3 or higher. This is a significant reduction in storm
activity compared with forecasts released in April that predicted 17 named
storms, 9 hurricanes, and 5 intense hurricanes, and an update in August that
predicted 15 named storms, 7 hurricanes and 3 intense hurricanes. As of September 1, only 5 named storms and 1
low-intensity hurricane (Category 1) had developed, and 18 percent of the Net
Tropical Cyclone (NTC) activity of the average hurricane season had
occurred. In an average year, 33 percent
of the NTC activity occurs before the end of August. June and July 2006 had approximately average
activity, while August has had below-average activity. The forecast for September calls for 5 named
storms, 3 hurricanes, 2 intense hurricanes, and NTC activity of 59, which is
slightly above the September-only average value of 48. The October forecast
calls for 2 named storms, 1 hurricane, no intense hurricanes, and NTC activity
of 12, which is below the October-only average value of 18. The long-term (1950-2000) average is 9.6
named storms, 5.9 hurricanes, and 2.3 intense hurricanes per year. The authors cite several reasons for the
downgraded forecast, including an unexpected increase in tropical Atlantic
mid-level dryness and a continued trend towards El Nino-like conditions in the
eastern and central Pacific. Significant New Deepwater Oil and
Natural Gas Discovery: A successful production test in the deepwater
Gulf of Mexico has confirmed a significant new oil play in the lower tertiary
Eocene (Wilcox) trend. The drilling test
took place at the Jack discovery, which is about 270 miles southwest of
Louisiana in 7,000 feet of water, more than 4 miles beneath the sea floor. Analysts say that it is possible that as much
as 2 to 3 billion barrels of oil have been discovered in this play and it is
likely that a considerable amount of undiscovered oil also could be in the
Keathley Canyon area nearby. Altogether,
the Eocene (Wilcox) trend could hold as much as 15 billion barrels of oil. Although predominantly oil, the play may
contain considerable natural gas associated with the oil. It is possible that 1 billion cubic feet per
day, or 15 percent of Gulf of Mexico production, could be produced. Given a shortage of rigs capable of drilling
below 25,000 feet in ultra-deep water and significant lead times for drilling
and completing a well, production of oil and natural gas is not expected to
begin until 2012 to 2014. Natural Gas Transportation
Update:
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