Natural Gas

Overview:

Since Wednesday, April 16, natural gas spot prices were lower at nearly all locations in the Lower 48 States. For the week (Wednesday-Wednesday), prices at the Henry Hub decreased 4 cents or less than 1 percent to $5.58 per MMBtu. The price of the NYMEX futures contract for May delivery at the Henry Hub decreased roughly 11 cents per MMBtu or nearly 2 percent since last Wednesday to settle at $5.569 per MMBtu yesterday (April 23). Natural gas in storage increased to 684 Bcf as of Friday, April 18, which is about 46 percent below the 5-year average. The spot price for West Texas Intermediate (WTI) crude oil decreased $1.12 per barrel or roughly 4 percent since last Wednesday to trade yesterday at $28.04 per barrel or $4.83 per MMBtu.

 

 

Prices:

Prices have fallen at nearly all market locations since last Wednesday, April 16, as moderate temperatures mitigated heating demand for natural gas. The majority of the declines occurred in the central parts of the Lower 48 States with prices falling up to 15 cents per MMBtu. Meanwhile, the largest declines since last Wednesday occurred closer to the coasts. Prices fell between 15 and 38 cents per MMBtu at most locations in the Rocky Mountains and California regions, and declines of more than 38 cents per MMBtu were prevalent in the Northeast region. The largest price drop of 57 cents per MMBtu occurred at Zone 2 of the Iroquois Pipeline, serving parts of New York State and Connecticut. Nevertheless, owing to an unusually cold winter and lingering cooler-than-normal temperatures, prices remain significantly higher than last year at this time. Prices at many market locations are more than 50 percent greater than last year. At the Henry Hub this year's price level exceeds last year's by nearly 54 percent.

 

Spot Prices ($ per MMBtu)	Thur.	Fri.	Mon.	Tues.	Wed.
	17-Apr	18-Apr	21-Apr	22-Apr	23-Apr
Henry Hub	5.53	5.53	5.55	5.57	5.58
New York	6.09	6.09	6.14	6.15	6.21
Chicago	5.50	5.50	5.51	5.56	5.59
Cal. Comp. Avg,*	5.17	5.17	5.22	5.16	5.18
Futures ($/MMBtu)
May delivery	5.709	Closed	5.713	5.645	5.569
Jun delivery	5.788	Closed	5.803	5.739	5.671
*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).

 

At the NYMEX, the price of the futures contract for May delivery at the Henry Hub declined by about 11 cents since Wednesday, April 23, to settle at $5.569 per MMBtu on Wednesday, April 23. The basis differential between the Henry Hub spot price and the May futures contract narrowed since last week, and became negative yesterday as the spot price at the Henry Hub exceeded the May contract price by about 1 cent per MMBtu. However, based on yesterday's (April 23) settlement prices, futures prices increase through January 2004 (with the exception of September and October) to $5.97 per MMBtu. With the futures contracts increasingly trading at a premium to the spot price, suppliers have economic incentives to inject gas into storage.

Estimated Average Wellhead Prices
	Oct-02	Nov-02	Dec-02	Jan-03	Feb-03	Mar-03
Price ($ per MMBtu)	3.35	3.59	3.84	4.47	5.45	6.69
Price ($ per Mcf)	3.44	3.67	3.93	4.58	5.58	6.86
Note: The price data in this table are a pre-release of the average wellhead price that will be published in forthcoming issues of the Natural Gas Monthly. Prices were converted from $ per Mcf to $ per MMBtu using an average heat content of 1,025 Btu per cubic foot as published in Table A2 of the Annual Energy Review 2001.
Source: Energy Information Administration, Office of Oil and Gas.

Storage:

Working gas in storage was 684 Bcf as of Friday, April 18, 2003, according to the EIA Weekly Natural Gas Storage Report (See Storage Figure). This is nearly 46 percent below the 5-year average for the report week, and nearly 57 percent below the level last year for the same week. The implied net change in working gas inventories from last week was a net injection of 61 Bcf, which is roughly 69 percent higher than the 5-year average injection of 36 Bcf for the report week. This breaks a two-week streak in which net withdrawals were reported for weeks in which net additions to storage are typical. Net injections in the East region were 34 Bcf, which is 79 percent greater than the 5-year average, and net injections were 20 Bcf, or 25 percent greater than the 5-year average in the Producing region. Warmer-than-normal temperatures that prevailed in most regions of the country and favorable price patterns likely drove the relatively large injections into storage (See Temperature Map) (See Deviation Map). According to the National Weather Service, gas-weighted heating degree days were over 24 percent below normal on average in the Lower 48 States.

 

All Volumes in Bcf	Current Stocks 4/18/03	Estimated Prior 5-Year (1998-2002) Average	Percent Difference from 5 Year Average	Implied Net Change from Last Week	One-Week Prior Stocks 4/11/03
East Region	298	628	-52.5%	34	264
West Region	174	185	-5.9%	7	167
Producing Region	212	444	-52.3%	20	192
Total Lower 48	684	1,257	-45.6%	61	623
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:

Drilling of First Hydrate Well Begins on the North Slope: Drilling of the first hydrate well in the United States, designated Hot Ice No. 1, has started from an onshore platform located about 60 miles west of Deadhorse, Alaska. Methane hydrates, which are ice crystals that encase natural gas under pressure and at cold temperatures, are expected to be found in the permafrost at depths of between 1,200 and 2,500 feet, according to the Department of Energy (DOE), which has funded the project in part. Hydrates have been encountered during drilling operations in the North Slope before, but a hydrate formation has never been the specific target of production activity. While the development of technologies to extract natural gas economically from hydrate formations is still in early stages, DOE research and U.S. Geological Survey (USGS) resource estimates have shown that hydrates could provide a vast resource. The natural gas associated with hydrate deposits in the North Slope is estimated at 590 Tcf, while the resource base from conventional production is estimated between 100 to 150 Tcf, according to the USGS. (More background information and resource estimates are available in the EIA report, "Future Supply Potential of Natural Gas Hydrates.") Drilling, currently suspended until the fall because of unseasonably warm temperatures, began in late March from the platform, which is in itself an element of the research project as a forerunner of a new design for onshore drilling platforms. The "Arctic Platform" is a light-weight, 100-by-100 foot aluminum structure that sits on steel legs about 12 feet off the ground. If used in commercial operations, the new design would reduce the "footprint" of production operations, according to DOE researchers. The $10.5 million project is being funded by DOE, Anadarko, Maurer Technology, and Noble Engineering and Development.

 

Summary:

Since Wednesday, April 16, natural gas spot prices were lower at most locations in the Lower 48 States. Prices at the NYMEX show an increasing trend through most of the remainder of this year, providing economic incentives to increase gas in storage. Natural gas in storage increased to 684 Bcf as of Friday, April 18, which is about 46 percent below the 5-year average.

 

Natural Gas Summary from the Short-Term Energy Outlook