Natural Gas

Overview:

Since Wednesday, March 5, natural gas spot prices have decreased at nearly all locations in the Lower 48 States, falling more than $1.45 per MMBtu. For the week (Wednesday-Wednesday), prices at the Henry Hub decreased $2.03 or roughly 26 percent to $5.78 per MMBtu. However, prices at the Henry Hub and elsewhere have returned to levels that prevailed in late January and early February and remain comparable to their elevated levels of the middle of February 2001. The price of the NYMEX futures contract for April delivery at the Henry Hub decreased roughly $1.156 per MMBtu or 17 percent since last Wednesday to settle at $5.865 per MMBtu yesterday (March 12). Natural gas in storage decreased to 721 Bcf as of Friday, March 7, which is about 48 percent below the 5-year average. The spot price for West Texas Intermediate (WTI) crude oil increased $1.01 per barrel or about 3 percent since last Wednesday to trade yesterday at $37.87 per barrel or $6.53 per MMBtu.

 

 

 

Prices:

Spot prices were lower yesterday compared with 7 days ago, keyed by significant price drops that averaged more than 29 cents per MMBtu for each trading day. These price decreases likely resulted from moderating temperatures and an expected warming trend through the remainder of the week, decreasing heating demand for natural gas. The steepest declines since last Wednesday occurred in the Northeast region where price declines ranged from $4.37 to $5.80 per MMBtu, or roughly 37 to 44 percent. Prices at the New York citygate fell $4.62 per MMBtu since last Wednesday; however, they remain among the highest in the nation at $7.36. Prices on the Algonquin system, which serves the New England region, tumbled $5.80 per MMBtu since last Wednesday. Substantial price drops also occurred in the Midwest, Mid-continent, Rocky Mountains, and California regions, where prices fell more than $2.69 per MMBtu. Despite large decreases, spot prices are nearly twice as high as the level reported last year at this time and rival the levels reported in 2001. The price at the Henry Hub yesterday was 14 percent greater than the level reported on March 12, 2001.

 

At the NYMEX, the price of the futures contract for April delivery at the Henry Hub declined by about $1.156 since Wednesday, March 5, to settle at $5.865 per MMBtu on Wednesday, March 12. The price of the futures contracts for May 2003 delivery fell by roughly 17 cents per MMBtu to $5.80 since last Wednesday. The basis differentials between the Henry Hub spot price and the April futures contract declined since last week by roughly 70 cents, and the spot price fell below the nearby month futures contract for the first time since the February 19. Similarly, the basis differential between the spot price and the May futures contract also declined since last Wednesday falling nearly $1.82 per MMBtu, as the spot price fell about 2 cents below the May futures price for the first time since January 22, 2003. This combination of price patterns indicates weakening economic incentives to withdraw gas from storage.

 

Spot Prices ($ per MMBtu)	Thur.	Fri.	Mon.	Tues.	Wed.
	6-Mar	7-Mar	10-Mar	11-Mar	12-Mar
Henry Hub	7.59	7.42	6.79	6.25	5.78
New York	10.82	10.11	9.42	7.75	7.54
Chicago	7.84	7.88	7.41	6.54	5.93
Cal. Comp. Avg,*	7.54	6.99	6.97	6.35	5.63
Futures ($/MMBtu)
Apr delivery	6.844	6.993	6.515	5.944	5.865
May delivery	6.064	6.303	6.165	5.810	5.800
*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:

Working gas in storage was 721 Bcf as of Friday, March 7, 2003, according to the EIA Weekly Natural Gas Storage Report, which is roughly 48 percent below the 5-year average for the report week (See Storage Figure). Working gas in storage for the Lower 48 States already is less than the previous low at the end of the traditional heating season (March 31), although still above the minimum of 697 Bcf, which was recorded on April 12, 1996. On a regional basis, working gas stocks in both the Consuming East and Producing regions are more than 51 percent below the 5-year average. Since the beginning of the heating season in November 2002, 2,451 Bcf of working gas has been withdrawn from storage. Although more than 3 weeks remain in the heating season, this already is the largest cumulative withdrawal total for any heating season in the 9-year history of the EIA working gas storage database. The implied net withdrawal for the week was 117 Bcf, which is nearly double the 5-year average of 63 Bcf for the week. This relatively high withdrawal can likely be attributed to weather that was cooler than normal throughout the most of the United States (See Temperature Map) (See Deviation Map). For the week ended March 8, 2003, heating degree days were roughly 12 percent above normal in the United States, with each region of the country outside the Southeast reporting cooler than normal temperatures. However, heating degree days (HDD) have fallen nearly 21 percent in the United States since HDDs peaked this heating season during the week ended January 25, 2003. This warming trend contributed to the smallest withdrawal reported since the week ended January 3, 2003, and more than 33 percent below the average weekly withdrawal reported thus far in 2003.

 

All Volumes in Bcf	Current Stocks 3/7/03	Estimated Prior 5-Year (1998-2002) Average	Percent Difference from 5 Year Average	Implied Net Change from Last Week	One-Week Prior Stocks 2/28/03
East Region	331	748	-55.7%	-72	403
West Region	179	189	-5.3%	-19	198
Producing Region	211	439	-51.9%	-26	237
Total Lower 48	721	1,376	-47.6%	-117	838
Source: Energy Information Administration: Form EIA-912, "Weekly Underground Natural Gas Storage Report," and the Historical Weekly Storage Estimates Database. Row and column sums may not equal totals due to independent rounding.

 

 

Other Market Trends:

Department of Labor's Bureau of Labor Statistics (BLS) Released Updated Price Information for Gas Consumers: The BLS released its most recent Producer Price Index (PPI) report, including statistics for natural gas, on February 20. According to the PPI, natural gas prices to end-users continued to increase between December 2002 and January 2003. The largest price increases occurred in the electric utilities and industrial sectors where prices climbed more than 13 percent and 8 percent since December 2002, respectively. Meanwhile, prices in the commercial sector increased over 6 percent and prices in the residential sector increased roughly 4 percent since December 2002.

 

In the current climate of high gas prices, all customers have paid more, but there are some aspects of the system that mitigate the impact of the current high commodity prices. The most commonly cited prices in the trade press are the upstream commodity prices, which at the Henry Hub have increased 88 percent on average from November 2002 to the beginning of February. From November 2002 to January 2003, the average residential gas price increased 34 percent—less than half the increase in the commodity price. Residential gas prices do not increase proportionally as much as the commodity price because the commodity portion of residential gas prices typically is less than half the total delivered price to this sector.  Additionally, most residential gas customers purchase their gas from a local distribution company (LDC), which typically purchases only a relatively small portion of its gas in the daily spot market.  Much of the gas is acquired by LDCs under longer-term contracts, which would not reflect a recent price run-up. However, residential natural gas consumers can expect higher gas bills because of increased gas use for space heating, owing to colder temperatures this winter.  As the temperatures became colder, which also contributed to the higher prices, households consumed more natural gas than they otherwise would have.  As both price and volume increase, the total amount paid increases more than either price or volume alone.

 

Natural Gas Summary from the Short-Term Energy Outlook:

EIA projects that natural gas wellhead prices will remain relatively high through late spring, averaging $6.00 per MMBtu in March, $5.41 in April, and $4.91 in May (Short-Term Energy Outlook, March 2003). Spot prices at the Henry Hub were above the $6.00 mark virtually all of February and spiked to $18.85 per MMBtu on February 25 as frigid weather covered much of the country. Henry Hub prices have fallen since then, reaching below $6.00 per MMBtu on March 12. Wellhead prices for the overall heating season (November through March), assuming normal weather for March, are expected to average $4.55 per MMBtu, which is $2.19 more than last winter's price. Overall in 2003, wellhead prices are projected to increase more than 60 percent above the 2002 level to $4.65 per MMBtu, which would be a record annual price in both nominal and real terms. This projection is based on the expectation of lower volumes of underground gas in storage compared with last year and continued increases in demand over 2002 levels. Cold temperatures since the first of the year have increased heating demand and led to a rapid drawdown of storage stocks, particularly in the East. As of March 7, 2003, working gas in storage was almost 48 percent below the previous 5-year average, and inventories in the East were nearly 56 percent below the 5-year average. In 2004, continued tightness of domestic natural gas supply and high demand levels are expected to keep the average wellhead price near the 2003 level.

 

A solid 3.7 percent growth in natural gas demand is projected in 2003, particularly if industrial sector consumption expands significantly as expected. Sharply higher weather-related demand has occurred already in January and February. Overall natural gas demand this winter is expected to be almost 9 percent higher than last winter, as estimated gas consumption weighted heating degree days during the fourth quarter of 2002 and first quarter of 2003 are 13 percent higher than year-earlier levels, assuming normal March temperatures. In 2004, natural gas demand is projected to continue to rise as industrial demand continues its recovery from its 2002 lows.

 

Natural gas production, which fell by about 2.8 percent in 2002, is projected to increase by 1.2 percent in 2003. High natural gas prices and growing oil and gas field revenues are expected to lead to a resurgence in gas-directed drilling activity, which could push gas drilling totals in 2004 to near or beyond the high levels seen in 2001. Domestic production growth should accelerate in 2004 but, given recent experience, production increases might be no more than 2 percent. With demand expected to outpace production growth, natural gas imports are expected to rise.

 

 

Short-Term Natural Gas Market Outlook, March 2003
	History			Projections
	Dec-02	Jan-03	Feb-03	Mar-03	Apr-03	May-03
PRICES ($/MMBtu)
Average Wellhead Price	3.74	4.35	5.14	6.00	5.41	4.91
Residential Price	7.79	8.05	8.36	8.83	9.72	10.46
Electric Utilities Price	4.63	5.03	5.70	6.72	6.07	5.60
SUPPLY (Trillion Cubic Feet)
Total Dry Gas Production	1.58	1.64	1.48	1.66	1.59	1.62
Net Imports	0.28	0.31	0.29	0.31	0.29	0.29
Imports	0.35	0.37	0.34	0.37	0.34	0.34
Exports	0.07	0.06	0.05	0.06	0.05	0.06
Suppl. Gaseous Fuels	0.01	0.01	0.01	0.01	0.01	0.01
Total New Supply	1.872	1.956	1.777	1.972	1.884	1.917
Working Gas in Storage
Opening	2.933	2.368	1.521	0.838	0.675	0.865
Closing	2.368	1.521	0.838	0.675	0.865	1.291
Net Storage Withdrawal	0.565	0.847	0.683	0.163	-0.190	-0.426
Total Supply	2.437	2.803	2.460	2.135	1.694	1.491
Balancing Item	-0.099	-0.153	-0.028	0.143	0.118	0.091
Total Primary Supply	2.338	2.651	2.433	2.278	1.813	1.582
DEMAND (Trillion Cubic Feet)
Lease & Plant Fuel	0.092	0.095	0.088	0.099	0.095	0.097
Pipeline Use	0.063	0.072	0.066	0.057	0.046	0.038
Delivered to Consumers	2.183	2.484	2.280	2.121	1.671	1.447
Residential	0.706	0.903	0.815	0.665	0.411	0.241
Commercial	0.383	0.451	0.414	0.361	0.255	0.175
Industrial	0.716	0.734	0.692	0.699	0.642	0.593
Electric Power	0.378	0.396	0.359	0.397	0.363	0.438
Total Demand	2.338	2.651	2.433	2.278	1.813	1.581

 

Source: Energy Information Administration, Short-Term Energy Outlook, March 2003.