Overview:  Thursday, April 10, 2003 (next release 2:00 p.m. on April 17)

Unlikely wintry weather in key market areas this week boosted aggregate demand, lifting natural gas spot prices $0.20 per MMBtu or more at most trading location in the Lower 48 States. For the week (Wednesday, April 2-Wednesday, April 9), the Henry Hub spot price increased 22 cents per MMBtu, while spot price gains in the still-frigid Northeast were generally between $0.70 and $1.00. The price of the NYMEX futures contract for May delivery at the Henry Hub rose $0.13 per MMBtu, or 2.6 percent, to settle at $5.195 yesterday (April 9). Natural gas in storage decreased to 671 Bcf as of Friday, April 4, which is about 44 percent below the 5-year average. The spot price for West Texas Intermediate (WTI) crude oil increased 38 cents per barrel or 1.3 percent since last Wednesday to trade yesterday at $28.93 per barrel or $4.99 per MMBtu.

 

 

Prices:

Space-heating demand in the Midwest and Northeast this week continued to pressure supplies even a week after the end of the traditional heating season and as buyers were initiating strategies for building storage in the off-season. After the release of updated forecasts calling for unseasonably cool temperatures for major market centers in the Northeast through most of the week, the Henry Hub price on Tuesday (April 8) increased $0.21 per MMBtu, its biggest daily gain in nearly 2 weeks. Despite falling $0.10 per MMBtu yesterday to $5.11, the Henry Hub price gained 5 percent on the week. In the Northeast, the price for deliveries from Algonquin Gas Transmission in Connecticut and New York rose $1.02 per MMBtu on the week to $6.59 yesterday. While weekly gains between $0.02-$0.15 per MMBtu on the West Coast were muted relative to other trading activity, Rockies prices managed to emerge from last week’s depressed levels with gains of $2.00 and more. The lifting of scheduled outages at El Paso’s San Juan Lateral on Monday relieved a supply glut in the region, boosting the price for spot gas back over $4 per MMBtu at the Bondad trading point in Colorado. The Bondad price gained $1.94 per MMBtu on the week after averaging $3.69 yesterday.

 

At the NYMEX, the price of the futures contract for May delivery at the Henry Hub fell below $5 per MMBtu late last week for the first time since January. However, the contract gained a total of about $0.27 over the past four sessions to a settlement of $5.195 per MMBtu yesterday. The May contract for much of last month had commanded a premium of $0.03-$0.10 cents per MMBtu over the June contract as traders expected market tightness to be short-term, but much of the optimism has faded as the June contract traded at a 6-cent premium at its Wednesday (April 9) closing price of $5.255. Colder-than-normal temperatures continued to pressure supplies this week, further emphasizing that the replenishment of historically-low storage inventories will be long term. On the week, the 12-month strip, or the average price for NYMEX contracts over the next year, gained $0.11 per MMBtu to about $5.23.

 

 

Spot Prices ($ per MMBtu)	Thur.	Fri.	Mon.	Tues.	Wed.
	3-Apr	4-Apr	7-Apr	8-Apr	9-Apr
Henry Hub	4.92	4.86	5.00	5.21	5.11
New York	5.50	5.78	6.13	6.53	6.42
Chicago	4.97	4.99	5.25	5.36	5.17
Cal. Comp. Avg,*	4.78	4.76	4.81	5.00	4.82
Futures ($/MMBtu)
May delivery	4.919	4.943	5.134	5.108	5.195
Jun delivery	4.984	4.993	5.179	5.168	5.255
*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 declined to 671 Bcf or 44.1 percent below the 5-year average as of April 4, according to EIA’s Weekly Natural Gas Storage Report (See Storage Figure).  The implied net withdrawal of 9 Bcf is equal to last year’s net withdrawal for the comparable week, but contrasts markedly with a 5-year average of a 14 Bcf injection. The weather was more than 11 percent warmer than normal across the country for the week ending April 5 as measured by heating degree days (HDDs), according to the National Weather Service. However, weather patterns extended this winter’s trend of cooler-than-normal temperatures in populous gas-consuming regions. Temperatures in the Mid-Atlantic were 3 percent colder than normal and over 10 percent colder than last year (See Temperature Map) (See Deviation Map).  The net withdrawal came as the traditional heating season closed with the end of March, reversing what would have been an early start to the storage injection season following two weeks of injections at the end of March. Stocks are now 35 Bcf higher than this winter’s record low of 636 Bcf, which was reported for the week ending March 14.

 

All Volumes in Bcf	Current Stocks 4/4/03	Estimated Prior 5-Year (1998-2002) Average	Percent Difference from 5 Year Average	Implied Net Change from Last Week	One-Week Prior Stocks 3/28/03
East Region	298	599	-50.3%	-7	305
West Region	167	184	-9.2%	0	167
Producing Region	206	416	-50.5%	-2	208
Total Lower 48	671	1,200	-44.1%	-9	680
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 Industry/Market Trends:

State of California Report Finds No Evidence of Manipulation in Winter Gas Price Spike.  In a report cooperatively produced by the California Energy Commission (CEC) and the California Public Utilities Commission (CPUC) released on March 28, 2003, California energy officials found no evidence of manipulation in the price run-up in the spot market for natural gas during late February and early March 2003.  Instead, staffs of both agencies found that both the price level and the volatility of prices “appear to be the direct result of actual and perceived natural gas demand and supply conditions.  The report identified several weather-related factors that had a significant impact on prices.  These included much colder than forecasted temperatures, which increased heating demand for natural gas, and reduced regional natural gas production owing to frozen natural gas wells and storms in the Gulf of Mexico.  The report noted that certain regulatory measures taken by the state since the winter of 2000-2001 may have mitigated the effect of the price spikes on California natural gas and electricity ratepayers.  The commissions also identified additional efforts that may lessen the impacts of market price volatility in the future.  These included increased demand side management, modernization or replacement of less efficient power plants, and development of additional supplies and additional natural gas storage capacity in California.

 

Natural Gas Summary from the Short-Term Energy Outlook:

Now that the heating season has ended, natural gas wellhead prices have fallen from the exceptionally high levels seen in February and early March. Nevertheless, they still remain historically and unseasonably high, hovering around $5.00 per MMBtu. EIA projects that natural gas wellhead prices will remain above $5.00 per MMBtu in April and then decrease to $4.36 in May and $4.26 in June (Short-Term Energy Outlook, April 2003). Wellhead prices for the 2002-2003 heating season (November through March) averaged $4.44 per MMBtu, or $2.08 more than last winter’s price. Overall in 2003, wellhead prices are projected to increase about $1.53 per MMBtu over the 2002 level to $4.40 per MMBtu. This projection is based on the expectation of lower volumes of natural gas in underground storage compared with last year and continued increases in demand over 2002 levels. Cold temperatures this past winter led to a record drawdown of storage stocks. By the end of March, estimated working gas stocks were 676 Bcf (prior estimates were 696 Bcf), which is the lowest end-of-March level in EIA records and 44 percent below the previous 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.

 

Despite high natural gas prices, natural gas demand is projected to increase by 2.7 percent in 2003, particularly if industrial sector consumption expands significantly as expected.  Sharply higher weather-related demand is already a fact for the first quarter of 2003, as gas demand increased by 6.7 percent while the economy rose by 2.2 percent. 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 2.6 percent in 2002, is projected to increase by 1.5 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 close to the high levels seen in 2001.  Domestic production growth should accelerate in 2004 but, given recent experience, production increases might be less than 2 percent. With demand expected to outpace production growth, natural gas imports are expected to rise.

 

 

Short-Term Natural Gas Market Outlook, April 2003
	History			Projections
	Jan-03	Feb-03	Mar-03	Apr-03	May-03	Jun-03
PRICES ($/MMBtu)
Average Wellhead Price	4.35	5.31	5.33	5.10	4.36	4.27
Residential Price	7.90	8.15	8.68	9.39	10.17	10.85
Electric Utilities Price	5.15	5.79	5.97	5.71	4.98	4.89
SUPPLY (Trillion Cubic Feet)
Total Dry Gas Production	1.64	1.48	1.66	1.59	1.61	1.55
Net Imports	0.29	0.29	0.30	0.31	0.31	0.30
Imports	0.35	0.33	0.35	0.35	0.35	0.35
Exports	0.06	0.04	0.04	0.04	0.04	0.05
Suppl. Gaseous Fuels	0.01	0.01	0.01	0.01	0.01	0.00
Total New Supply	1.944	1.776	1.965	1.908	1.923	1.853
Working Gas in Storage
Opening	2.375	1.521	0.838	0.696	0.825	1.248
Closing	1.521	0.838	0.696	0.825	1.248	1.650
Net Storage Withdrawal	0.854	0.683	0.142	-0.129	-0.422	-0.403
Total Supply	2.798	2.459	2.107	1.779	1.501	1.451
Balancing Item	-0.184	-0.056	0.034	-0.187	-0.055	0.035
Total Primary Supply	2.614	2.403	2.141	1.592	1.446	1.485
DEMAND (Trillion Cubic Feet)
Lease & Plant Fuel	0.095	0.088	0.101	0.099	0.100	0.096
Pipeline Use	0.063	0.051	0.046	0.036	0.032	0.033
Delivered to Consumers	2.456	2.263	1.993	1.457	1.314	1.356
Residential	0.903	0.820	0.629	0.389	0.244	0.147
Commercial	0.459	0.427	0.358	0.254	0.180	0.141
Industrial	0.716	0.672	0.674	0.628	0.586	0.550
Electric Power	0.377	0.344	0.332	0.185	0.304	0.517
Total Demand	2.614	2.403	2.141	1.592	1.446	1.484

 

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