Overview:  Thursday, June 12, 2003 (next release 2:00 p.m. on June 19)

Moderate temperatures across the country except in the Southwest contributed to natural gas spot prices easing 25 to 50 cents per MMBtu since Wednesday, June 4. On the week (Wednesday, June 4-Wednesday, June 11), the Henry Hub spot price dropped 35 cents per MMBtu to $6.06. The NYMEX futures contract for July delivery at the Henry Hub fell about 16 cents per MMBtu to $6.213. Natural gas in storage as of Friday, June 6, increased to 1,324 Bcf, which is 25.2 percent below the 5-year average. The spot price for West Texas Intermediate (WTI) crude oil rose $2.36 per barrel on the week to yesterday’s (June 11) closing price of $32.17 per barrel, or $5.55 per MMBtu.

 

 

Prices:

Natural gas spot prices at many market locations in the Lower 48 States have declined for three consecutive trading days from Friday peaks as key market areas in the Midwest and the Eastern seaboard have experienced unseasonably cool weather. Although prices remain elevated, the slackened demand for natural gas for electric generation has contributed to prices generally softening across the board. For the week, the spot price at the Henry Hub dropped about 6 percent to $6.06 per MMBtu, while other pricing points on the Gulf Coast showed slightly greater declines and fell below the $6-mark. The overall easing of prices may reflect also the slightly improving storage picture as injections in 7 of the past 8 weeks have exceeded the 5-year average with a record net addition reported last Thursday. Although the storage refill season started slowly, injections have increased considerably, with at least one major interstate pipeline serving the Northeast, Tennessee Gas Pipeline, announcing restrictions to shippers due to injection nominations exceeding capacity. The spot price at Tennessee Gas Pipeline’s Zone 6, which serves major citygates in New York and other Northeastern states, this week fell 47 cents per MMBtu to $6.30. In contrast to the East, prices in the West moved higher early in the week, as maintenance on El Paso Natural Gas in the San Juan Basin restricted deliveries from the region and a heat wave sparked buying at pricing locations in California and New Mexico. The spot price at the Southern California border surged 61 cents per MMBtu on Monday to $5.78, but has since dropped to $5.51, which is a net decline of 51 cents since Wednesday, June 4.  

 

Spot Prices ($ per MMBtu)	Thur.	Fri.	Mon.	Tues.	Wed.
	5-Jun	6-Jun	9-Jun	10-Jun	11-Jun
Henry Hub	6.17	6.26	6.25	6.08	6.06
New York	6.52	6.58	6.59	6.41	6.39
Chicago	6.16	6.26	6.20	6.05	6.02
Cal. Comp. Avg,*	5.44	5.29	5.57	5.56	5.39
Futures ($/MMBtu)
Jul delivery	6.521	6.510	6.314	6.330	6.213
Aug delivery	6.584	6.580	6.404	6.420	6.303
*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 June delivery at the Henry Hub closed yesterday (June 11) at $6.213 per MMBtu, which is about 16 cents lower than last Wednesday’s daily settlement. The near-month contract surged to daily settlements above $6.50 per MMBtu on Thursday and Friday, which were the highest settlements for a prompt contract since March 10. However, NYMEX prices reversed course when traders came back from the weekend as continued moderate temperatures and an increased pace of storage injections led to the near-month contract falling on Wednesday to its lowest closing price since May 30. The August contract yesterday settled at just over $6.30 per MMBtu. Meanwhile, the July 2003-January 2004 spread increased to 47.4 cents, which is a little more than 11 cents higher on the week.. 

 

Estimated Average Wellhead Prices
	Dec-02	Jan-03	Feb-03	Mar-03	Apr-03	May-03
Price ($ per Mcf)	3.84	4.47	5.45	6.69	4.71	4.97
Price ($ per MMBtu)	3.74	4.36	5.31	6.53	4.59	4.85
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 as of June 6 was 1,324 Bcf, which is 25.2 percent below the 5-year average inventory level for the comparable reporting week, according to EIA’s Weekly Natural Gas Storage Report. (See Storage Figure). The implied net injection of 125 Bcf is the highest injection in EIA’s 9-year weekly storage database.  This occurrence marks the second week in a row that net injections have established a new record, eclipsing last week’s injection of 114 Bcf. The net injection for the week was roughly 42 percent higher than the 5-year average injection of 88 Bcf for the comparable week, closing the deficit from average to 446 Bcf. Storage activity in the Producing Region resulted in a net injection of 42 Bcf, which is more than double the 5-year average injection of 19 Bcf in the region. Moderate temperatures throughout the Midwest and East once again provided the opportunity to re-build storage levels as cooling demand in key demand centers was minimal ((See Temperature Map) (See Deviation Map).  Throughout the Lower 48 States, temperatures were approximately 18 percent cooler-than-normal for the week ending June 7, as measured by cooling degree days, according to the National Weather Service.

 

All Volumes in Bcf	Current Stocks 6/6/03	Estimated Prior 5-Year (1998-2002) Average	Percent Difference from 5 Year Average	Implied Net Change from Last Week	One-Week Prior Stocks 5/30/03
East Region	697	948	-26.5%	68	629
West Region	241	246	-2.0%	15	226
Producing Region	386	577	-33.1%	42	344
Total Lower 48	1,324	1,770	-25.2%	125	1,199
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:

Greenspan Testifies on Natural Gas: Federal Reserve Board Chairman Alan Greenspan appeared before the House Energy and Commerce Committee on Tuesday, June 10, to present testimony about current high natural gas prices and the natural gas industry’s status and outlook.  Noting the nation’s current natural gas supply-demand situation and expressing surprise that this “most important” issue has received so little attention to date, Greenspan said that current high natural gas prices are not the result of short-term market forces, but instead a longer-term steady increase from the $2 gas of the 1990s.  Those relatively low price levels fostered the growth of a huge gas-consuming infrastructure of industrial facilities and electricity generators that have contributed to making $2 gas a “relic of the past.”  Stating that the nation will never be self-sufficient in natural gas supply from domestic production, Greenspan said that the Congress faces tough choices concerning opening additional federal territory to exploration and production and facilitating the expansion of LNG import capabilities.  Greenspan spoke favorably about the potential for LNG to help meet growing demand, noting that natural gas reserves world-wide are vast, and, unlike oil, are more geographically dispersed, lessening to some extent the risk and uncertainty from foreign supply disruptions.  In addition, Greenspan reminded the Committee that, while domestic production from conventional sources may have peaked, production from non-conventional sources (such as coalbed methane and tight formation production) has been growing and that those resources are also relatively abundant.  Finally, Greenspan expressed his personal opinion that the Committee should take a fresh look at the possibilities for nuclear power in the nation’s energy mix.

 

Natural Gas Summary from the Short-Term Energy Outlook:

EIA projects that natural gas prices will remain relatively high this summer and continue at elevated levels through the rest of 2003 (Short-Term Energy Outlook, June 2003). Natural gas wellhead prices are expected to average $5.40 per MMBtu in June and remain above $5.13 through December 2003. Spot prices at the Henry Hub have stayed well above $5.00 per MMBtu on a monthly basis since the beginning of the year and have been above $6.00 for the first 10 days of June. The low level of underground storage is the principal reason for these unusually high prices.  As of June 6, 2003, working gas stocks were 1,324 Bcf, which is about 35 percent below year-earlier levels and 25 percent below the 5-year average. Natural gas prices are likely to stay high as long as above-normal storage injection demand competes with industrial and power sector demand for gas. Overall in 2003, wellhead prices are projected to increase about $2.33 per MMBtu (the largest U.S. annual wellhead price increase on record) over the 2002 level to a record annual high of about $5.20 per MMBtu. For 2004, prices are projected to ease only moderately, as supplies are expected to remain tight.

Natural gas production is expected to increase by 2.2 percent in 2003.  High natural gas prices and sharply higher oil and natural gas field revenues are driving the resurgence in gas-directed drilling activity following the downturn in 2002. Domestic production growth should continue in 2004 but, given recent experience, the extra effort might result in increases of less than 2 percent. The prospects for significant reductions in natural gas wellhead prices from the current high levels could hinge on the success of the new drilling efforts.

Natural gas demand is expected to remain flat in 2003 and 2004 compared with the 2002 level.  Little or no growth this year is likely despite sharply higher weather-related demand during the first quarter of 2003, as weakness in overall industrial output and sharply higher prices have resulted in stagnant or falling demand in the industrial and electric power sectors. Demand for natural gas this summer is expected to fall by close to 1 percent from last summer’s level, largely because of weather effects in the power sector. Assuming normal weather, cooling degree-days for the months of April through September will be about 8 percent less than year-ago levels. Continued tight market conditions increase the likelihood of price volatility.

 

Short-Term Natural Gas Market Outlook, June 2003
	History			Projections
	Mar-03	Apr-03	May-03	Jun-03	Jul-03	Aug-03
PRICES ($/MMBtu)
Average Wellhead Price	6.51	4.59	5.01	5.40	5.20	5.14
Residential Price	8.93	8.58	9.49	10.65	11.40	11.73
Electric Utilities Price	7.10	7.21	6.40	6.82	6.38	6.22
SUPPLY (Trillion Cubic Feet)
Total Dry Gas Production	1.656	1.591	1.634	1.600	1.657	1.651
Net Imports	0.299	0.297	0.298	0.301	0.306	0.302
Imports	0.354	0.349	0.353	0.356	0.363	0.360
Exports	0.055	0.052	0.055	0.055	0.057	0.058
Suppl. Gaseous Fuels	0.007	0.006	0.005	0.005	0.006	0.006
Total New Supply	1.962	1.894	1.938	1.905	1.969	1.959
Working Gas in Storage
Opening	0.838	0.676	0.803	1.212	1.548	1.954
Closing	0.676	0.803	1.212	1.548	1.954	2.288
Net Storage Withdrawal	0.162	-0.127	-0.409	-0.336	-0.406	-0.334
Total Supply	2.124	1.767	1.529	1.569	1.563	1.625
Balancing Item	0.111	0.106	0.218	0.041	0.097	0.022
Total Primary Supply	2.235	1.872	1.747	1.610	1.660	1.647
DEMAND (Trillion Cubic Feet)
Lease & Plant Fuel	0.102	0.101	0.106	0.105	0.107	0.107
Pipeline Use	0.050	0.041	0.035	0.034	0.036	0.038
Delivered to Consumers	2.083	1.730	1.606	1.472	1.517	1.502
Residential	0.637	0.392	0.245	0.148	0.113	0.102
Commercial	0.364	0.257	0.182	0.139	0.134	0.133
Industrial	0.694	0.650	0.645	0.618	0.593	0.611
Electric Power	0.389	0.431	0.534	0.567	0.677	0.656
Total Demand	2.235	1.872	1.747	1.610	1.660	1.647

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