Overview:
Thursday, October 12 (next release 2:00 p.m. on October 19, 2006)
Natural
gas spot prices increased sharply this week (Wednesday-Wednesday, October 4-11)
as colder temperatures crept into the Midwest. For the week, the price at the
Henry Hub increased $1.28 per MMBtu, or about 29 percent, to $5.65. At the New
York Mercantile Exchange (NYMEX), the price of the futures contract for
November delivery at the Henry Hub moved higher by about 16 cents per MMBtu to
settle yesterday (Wednesday, October 11) at $6.150. Natural gas in storage was 3,389 Bcf as of Friday, October 6, which is
11.8 percent higher than the 5-year average. The spot price for West
Texas Intermediate (WTI) crude oil decreased $1.97 per barrel, or about 3
percent, since last Wednesday (October 4) to trade yesterday at $57.56 per
barrel or $9.92 per MMBtu.
Spot price increases were widespread this week, with
prices at most reporting market locations outside of the Rockies increasing by
more than $1 per MMBtu. The Henry Hub price has risen in five of the past six trading
sessions, trading at the end of this report week at $5.65 per MMBtu, as autumn weather
sets in. This is the highest price for next-day delivery at the Henry Hub in more
than a month (since September 6). However, the spot price is still considerably
lower (about 60 percent) than it was this time last year, following the
devastating hurricane season. At this time last year the Henry Hub was just
coming back into service after Hurricane Rita struck, and the first price
quotes exceeded $13 per MMBtu. In contrast, this hurricane season, which does not
end officially until November 1, has yielded little, if any, interruption of
natural gas flows from the Gulf of Mexico. This is certainly one factor in what
was a trend of generally declining prices in September. However, that trend
reversed in early October with 2 straight weeks of price increases. Trading
locations in producing areas along the Gulf Coast this week registered
increases from $0.77 to $1.33 per MMBtu. In the Midwest, where low temperatures
were below freezing in some areas, the average price increased $1.33 per MMBtu
to $5.79. Although the unusually cold temperatures have not quite reached the
Northeast, prices in the region gained an average of $1.30 per MMBtu to an
average price of $6.02 as of Wednesday, October 11. The price for gas off Tennessee
Gas Pipeline in New England (Zone 6) increased $1.30 per MMBtu to $6.18, which
was the highest price in the country yesterday. In contrast to price trends in
the East, prices decreased at several market locations in the Rockies on the
week. The spot price at Opal, Wyoming, declined 28 cents per MMBtu on the week
to $3.74. Prices in California were higher on the week, albeit less so than in
the East. The price at the Southern California border increased $0.46 per
MMBtu, or 10 percent, to $5.03.
The
price of the NYMEX futures contract for November delivery gained $0.155 per
MMBtu on the week to settle at $6.150 yesterday (October 11), as the prices for
contracts over the next year moved up this week in response to early cold
temperatures. NYMEX futures also may have been pushed higher in technical
trading following the precipitous decline last month, which was prompted by the
lack of hurricane related shut-ins and, possibly, lower prices for crude oil
and petroleum products that compete with natural gas. Before decreasing about
32 cents per MMBtu yesterday, the price of the November contract had increased in
eight consecutive trading sessions. The sequence of price increases resulted in
the highest price for the November contract ($6.466 per MMBtu on Tuesday,
October 10) since mid-September. The NYMEX contract for February 2007 closed
yesterday at $8.302 per MMBtu, up about 15 cents on the week and the highest
price in the 12-month strip. Contracts for the heating season (November 2006
through March 2007) increased an average of nearly 15 cents per MMBtu to settle
at an average of $7.71. This heating season average price is considerably lower
than the $10-plus prices traded for the winter delivery contracts several
months ago. Still, at yesterday’s closing price, the November contract was
trading at a 50-cent per MMBtu premium to the Henry Hub spot price, providing
an economic incentive to store gas for later use. The 12-month strip, which is
an average of futures prices for the coming year, increased about 14 cents per
MMBtu to $7.74 since last Wednesday (October 4).
Recent Natural Gas Market Data
|
Estimated Average Wellhead Prices |
||||||
|
|
Apr-06 |
May-06 |
June-06 |
July-06 |
Aug-06 |
Sep-06 |
|
6.59 |
6.19 |
5.80 |
5.82 |
6.51 |
5.51 |
|
|
Price
($ per MMBtu) |
6.42 |
6.03 |
5.65 |
5.67 |
6.34 |
5.37 |
|
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 as of October 6 was 3,389 Bcf, which is 11.8 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 implied net injection of 62 Bcf for the report week was 5 percent less than
the 5-year average net injection of 65 Bcf and about 11 percent more than last year’s
net injection of 56 Bcf. As a result, the difference between this year’s stocks
and the 5-year average increased to 358 Bcf, and the difference between this
year’s stock level and last year declined to 410 Bcf. This report week’s net injection is the
lowest for the Lower 48 States since August 25, when cooling demand in key
market locations likely contributed to reduced net injections. This week’s low
injection relative to recent weeks reflects heating demand picking up in parts
of the country, although temperatures as a whole were warmer than normal during
the report week (See Temperature Maps), according to heating degree-days as
measured by the National Weather Service. In its most recent short-term forecast, EIA has
projected that working gas in storage at the start of the winter heating season
(November 1) will be about 3,540 Bcf, which is about 360 Bcf above the 5-year
average yet below EIA’s estimated maximum working gas storage capacity of about
3,600 Bcf. This week’s working gas volume is the second highest yearly peak for
working gas in storage recorded by EIA. The largest volume of working gas in
storage to date is 3,472 Bcf, achieved at the end of November 1990.
Other Market Trends:
EIA Releases
Its Winter Fuels Outlook: According to the Energy Information Administration’s (EIA) latest Short Term Energy Outlook (STEO), released on October 10, natural gas spot prices at
the Henry Hub are expected to average about $6.90 per thousand cubic feet (Mcf)
in 2006 and increase to $7.53 per Mcf in 2007.
Total U.S. natural gas consumption in 2006 is expected to fall by about
250 billion cubic feet (Bcf) or about 1.1 percent below the 2005 level and then
increase by about 640 Bcf or almost 3 percent in 2007. The relatively low consumption in 2006
reflects a large drop-off in residential consumption, which is attributable
largely to the mild weather during the early months of 2006. During the start of this winter season on November
1, working gas in storage is expected to be about 3,540 Bcf, which is roughly
360 Bcf more then the 5-year average.
This large inventory should mitigate upward pressure on natural gas
prices. Domestic dry natural gas
production in 2006 is expected to increase by 0.8 percent in both 2006 and in
2007, owing to continued high levels of drilling for natural gas prospects and
restored production capacity from the major disruptions caused by Hurricanes
Katrina and Rita in the Gulf of Mexico in 2005.
Because of the lack of activity so far this hurricane season,
significant hurricane-induced losses are not likely this year. Included in this
month’s STEO are, among other things, expected prices for petroleum products;
the baseline weather case for this winter; projection of heating expenditures
by residential customers relative to last winter; and a projection of prices
beyond the upcoming winter.
Recent Trends in LNG Imports
to the United States: Although the global market for liquefied natural gas (LNG) is growing,
LNG still accounts for a small part of the U.S. supplies. Indications so far
this year are that there will be little, if any, incremental increase over the
annual volumes of the last few years. U.S. importers have not yet begun bringing
the expected larger volumes of LNG to the United States under long-term
contracts, and transactions in the growing but small LNG spot market this year
have so far resulted in lackluster volume growth compared with levels recorded earlier
this decade. Through August 2006, the United States has received the gaseous
equivalent of 409 billion cubic feet (Bcf) in LNG imports, a slight decrease
from last year’s 411 Bcf total through August. The Lake Charles, Louisiana,
facility has had the lowest utilization rate (not including the new offshore
Gulf Gateway facility). This facility in the past has received the largest
volumes of LNG from the spot market. This suggests that either supplies on the
spot market are minimal or price competition, particularly from the United Kingdom
and Spain in the Atlantic Basin, has limited spot shipments to the United
States. Although the markets in Europe and United States currently are not
experiencing the turmoil of last year’s chaotic preparations for winter (the
U.S. industry was recovering from the worst hurricane season in decades),
prices for winter deliveries are still high relative to previous years. Natural
gas prices on the International Petroleum Exchange (IPE) in the United Kingdom
show that prices during the upcoming winter season in Europe are once again
expected to exceed those in the United States by a significant margin. The
price for the futures contract for January 2007 delivery on the New York
Mercantile Exchange, for example, was $8.505 per MMBtu as of October 9, while
the IPE price for the corresponding contract was $13.68 (see figure).
This relative price pattern indicates that the United Kingdom or the European
continent likely will be preferred destinations for spot market cargoes. The
Energy Information Administration (EIA) currently projects deliveries of
roughly 650 Bcf in 2006. In the long-term, EIA still expects LNG to be a
critical supply source, which will expand to meet growing U.S. consumption. In
2007, EIA projects year-over-year LNG import growth of more than 40 percent to
920 Bcf.
NOAA Releases Winter Weather Outlook: The
National Oceanic and Atmospheric Administration (NOAA) released its latest weather
outlook for the 2006-2007 winter on October 10, 2006, predicting above normal
temperatures, although slightly cooler than last year’s. According to NOAA,
from December through February, the Lower 48 States can expect about 2 percent
fewer heating degree-days (HDDs) than average, but about 5 to 10 percent more
HDDs than during the same period last winter. The NOAA Climate Prediction
Center further states that the weak El Nino conditions which have developed in
the tropical Pacific are expected to persist throughout the 2006-2007 winter,
and possibly reach moderate strength over the next few months. However, the
event is not expected to reach the magnitude of the very strong 1997-1998 El
Nino event. The strengthening El Nino event is expected to affect winter
precipitation and temperature patterns across the United States.
Warmer-than-normal temperatures are expected west of the Rocky Mountains, the
Midwest, most of the Northeast, as well as most of Alaska. Close to normal
temperatures are expected for parts of the Southeast, while below normal
temperatures are anticipated for Hawaii. The remaining regions have equal
chances of warmer, cooler, and near-normal temperatures this winter.
Natural Gas Transportation Update:
