Overview: Thursday June 6, 2002 (next release 2:00 p.m. on June 13)

Natural gas spot prices weakened in the opening days of June as concerns lingered over high storage inventories levels and mild weather limited gas demand in the key market areas of the Midwest and Northeast.  Net storage injections for the week ending May 31 were 105 Bcf, bringing the total inventory level in the country to 1,893 Bcf, according to EIA estimates.  Since Wednesday, May 29, prices at most trading locations have dropped by 16 cents or less.  At the NYMEX, prices for futures contracts have declined more sharply.  In the first week of trading as the near-month contract, the price for a futures contract for July delivery fell to $3.260 per MMBtu by yesterday’s close, a drop of $0.245 per MMBtu since the previous Wednesday.  Crude oil prices provided little impetus for price advances.  The spot price of West Texas Intermediate crude oil fell $0.62 per barrel for the week, trading on Wednesday, June 5 at $25.02 per barrel, or $4.31 per MMBtu.

 

 

 

Prices:

Spot prices at most market locations in the Lower 48 outside California declined in the past week owing to high storage inventories and limited demand for air-conditioning.  At the Henry Hub, the average spot price declined to $3.28 per MMBtu, or by 1 cent on the week.  Prices in other major market areas showed similar slight decreases, except in the Rockies, where prices dropped significantly, with declines of up to 75 cents per MMBtu for the week.  The Chicago and New York citygate prices yesterday fell to $3.24 per MMBtu and $3.59, respectively, equating to losses of 2 percent or less for the week.   Spot market trading late last week resulted in a steep decline in prices as traders in the cash markets incorporated new estimates of storage inventories into their positions. Since the beginning of this week, however, prices have staged a mild recovery, edging up a dime in anticipation of warmer weather in the South and the West.  Prices at the Southern California Border and other western trading locations continued to depart from trends in other parts of the country, with gains of a dime or more since last Wednesday in part because of hotter weather.  Prices at the Southern California Border increased 14 cents for a week-to-week increase of 5 percent.  Maintenance on Transwestern’s San Juan Lateral in New Mexico, which reduced volumes on the pipeline by about 615 MMcf for Tuesday, also likely contributed to large price swings in parts of the West early this week.  Prices at trading locations on Transwestern and El Paso Natural Gas (non-Bondad) declined by 38 cents during Monday’s trading, but rebounded by 60 cents or more the following day to about $2.38 per MMBtu.

 

At the NYMEX, the settlement price of the futures contract for July delivery fell to a 6-week low last Thursday, May 30, with a closing price of $3.222 per MMBtu on its first day of trading as the near-month contract.  The loss of 8 percent of the contract’s value, which in part may have provided a slight correction from a price run-up of over 13 cents in the previous session, followed EIA’s release of storage inventory estimates.  In trading early this week, however, prices stabilized with reports of warmer weather approaching in many areas of the country leading to expectations of higher demand.  The price for the July futures contract yesterday closed at $3.26 per MMBtu, a decrease of $0.25 per MMBtu on the week. The price for the 12-month strip, which settled at $3.593 per MMBtu at yesterday’s close, hovered around the $3.60 mark during the past week.  The futures contract for January 2003 delivery settled at $3.937 per MMBtu on Wednesday, June 5.

 

Spot Prices ($ per MMBtu)	Thur.	Fri.	Mon.	Tues.	Wed.
	30-May	31-May	3-Jun	4-Jun	5-Jun
Henry Hub	3.34	3.15	3.18	3.30	3.28
New York	3.72	3.44	3.46	3.66	3.59
Chicago	3.39	3.13	3.13	3.26	3.24
Cal. Comp. Avg,*	2.91	2.59	2.71	2.78	2.72
Futures ($/MMBtu)
July delivery	3.222	3.217	3.242	3.328	3.260
Aug delivery	3.290	3.280	3.295	3.370	3.310
*Avg. of NGI's reported avg. prices for:  Malin, PG&E citygate,
and Southern California Border Avg.
Source: NGI's Daily Gas Price Index (http://intelligencepress.com).

 

Storage:

Total inventories for the Lower 48 increased to 1,893 Bcf, or 436 Bcf over inventory levels at this time last year, according to EIA’s Weekly Natural Gas Storage Report.  In a week with reduced industrial demand owing to the Memorial Day holiday and little weather-related demand, net injections for the week ending May 31 were 105 Bcf, which is the highest level for the year.  Net injections were about 2 percent above last year’s mark of 103 Bcf, but 22 percent greater than the 5-year average of 86 Bcf.  This week’s report includes a downward adjustment of 8 Bcf to the stock levels for the Producing Region from the previous week.  Despite warmer-than-normal temperatures in many areas of the country, weather during the week appeared to draw little demand.  As measured by cooling degree days (CDDs), the Rocky Mountains and Pacific areas of the country were between 75 and 91 percent warmer than normal from May 26 to June 1.  However, temperatures in these areas were still mostly in the 60s and 70s, not high enough to generate significant demand for air-conditioning.  Temperatures in most areas of Texas and Florida stayed close to normal with averages in the 70s for the week. (See Temperature Map) (See Deviation Map)  For the month of May, the industry injected an estimated 316 Bcf, or 133 Bcf less than the 449 Bcf that was injected during last year’s rapid refill of depleted stocks.  Current stock levels are 21 percent higher than the 5-year average for this week. (See Storage Figure)

 

All Volumes in Bcf	Current Stocks 5/31/2002	Estimated Prior 5-Year (1997-2001) Average	Percent Difference from 5 Year Average	Net Change from Last Week	One-Week Prior Stocks 5/24/2002
East Region	910	843	8%	62	848
West Region	284	224	27%	17	267
Producing Region	699	496	41%	26	673 R
Total Lower 48	1,893	1,563	21%	105	1788 R
Source:  Energy Information Administration:  Form EIA-912, "Weekly Underground Natural Gas Storage Report," and the Historical Weekly Storage Estimates Database. R: Revised

 

Other Market Trends:

FERC Releases Study on the Effects of Waiving Rate Ceiling for Capacity Release Transactions:  The Federal Energy Regulatory Commission (FERC) released a White Paper on Thursday, May 30, which presents the results of a 2-year experiment with waiving the rate ceiling on short-term capacity release transactions. Shippers holding contracts for firm transportation services from interstate pipeline companies use the capacity release mechanism to offer the rights to some or all of their firm capacity in exchange for revenue credits.  In Order 637, FERC instituted a 2-year moratorium, ending September 2002, on price caps for releases of capacity for less than a 1-year period. The maximum price ceilings for rates were retained for primary capacity available from the pipelines and long-term releases of capacity. The FERC report, available on the FERC website, provides a summary of its analysis of capacity release transactions during the period from March 2000 to December 2001 for a sample of 34 pipelines.  Over this period, capacity release volumes receiving prices over the price cap were 2 percent of total capacity release volumes.   Capacity release volumes and prices showed seasonal variation, increasing during times of peak demand.  In addition, capacity releases tended to increase in response to adverse events such as the El Paso pipeline explosion in August 2000.  For each month in the study period, the average rates for all released capacity volumes were never more than 3 cents higher than the corresponding adjusted monthly average would have been if the 26-cent average maximum tariff rate had remained in place.  However, the above-cap rates varied widely:  52 percent of the volumes contracted at above-cap rates were up to 50 percent above the ceiling, 39 percent were 50 to 400 percent above the ceiling, and less than 10 percent were more than 400 percent above the ceiling.   The majority of capacity releases contracted at levels above the cap were for the subsequent month.  These results indicate that removing the price cap in the short-term market did not cause a large increase in the average price level, but some customers paid substantially higher rates.  This may have enhanced efficiency by allowing participants to engage in trade at levels above the mandated price ceiling for short periods. FERC requests comments about the report, about extending the period of the moratorium, and additional anecdotal information from interested parties.

 

 

Summary:

Spot prices fell at most market locations during the week with declines generally less than 16 cents.  Becoming the near-month contract on Thursday, May 30, the July contract settled at a then-6 week low, and declined further on Friday.  This contract has staged a mild recovery since late last week, but yesterday lost 6.8 cents during trading for a settlement price of $3.26 per MMBtu. Net injections into storage totaled 105 Bcf during the week ending May 31, compared with a 103 Bcf injection during the comparable week a year ago. 

    

Natural Gas Summary from the Short-Term Energy Outlook