Natural Gas

Overview: Thursday, March 18, 2004 (next release 2:00 p.m. on March 25)

Natural gas spot prices have increased since Wednesday, March 10, at most market locations in the Lower 48 States. For the week (Wednesday-Wednesday), prices at the Henry Hub increased 28 cents or about 5 percent to $5.61 per MMBtu. Yesterday (Wednesday, March 17), the price of the NYMEX futures contract for April delivery at the Henry Hub settled at $5.722 per MMBtu, increasing roughly 33 cents or 6 percent since last Wednesday. Natural gas in storage decreased to 1,097 Bcf as of March 12, which is less than 6 percent below the 5-year average. The spot price for West Texas Intermediate (WTI) crude oil climbed $2.00 per barrel or about 6 percent since last Wednesday, to $38.21 per barrel or $6.588 per MMBtu.

Prices:

Spot gas prices increased 2 to 8 percent since last Wednesday, March 10, climbing between 11 and 46 cents per MMBtu, with increases exceeding 25 cents at most market locations. Factors contributing to the run-up in natural gas prices include wintry weather conditions blanketing most of the Northeast and Midwest regions and climbing crude oil prices, which have increased $2 per barrel or 35 cents per MMBtu since Monday, March 15. The largest increases occurred principally in the intensive gas-consuming regions of the Northeast and Midwest. Some markets in Texas, Louisiana, and California also had increases of more than 32 cents per MMBtu, despite relatively mild weather conditions in their respective regions. With these price hikes, prices at most market locations now exceed last year's level by between 2 and 7 percent. For example, as of Wednesday, March 18, prices at the Henry Hub exceeded last year's level by about 5 percent. Despite last week's increases, prices remain well below the highs recorded in mid-January 2004, and have fallen roughly 5 to 10 percent at most market locations since the start of the new year.

At the NYMEX, the price of the futures contract for April delivery at the Henry Hub increased about 33 cents or 6 percent since last Wednesday (March 10). Similarly, the price of the futures contracts for delivery through the refill season months (April-October) also increased between 28 and 33 cents per MMBtu or between 5 and 6 percent. At $5.722 per MMBtu, the price of the April contract is at its highest level since January 12, 2004, and the highest level for a near-month contract since January 28, 2004.

Storage:

Working gas in storage was 1,097 Bcf as of Friday, March 12, 2004, according to the EIA Weekly Natural Gas Storage Report. This is about 6 percent below the 5-year average for the report week and 461 Bcf above the level last year for the same week. (See Storage Figure) The implied net withdrawal during the report week was 46 Bcf, which is 43 percent below than the 5-year average withdrawal of 81 Bcf for the week, and about 44 percent less than the withdrawal of 82 Bcf reported for the same week last year. Warmer-than-normal temperatures across most of the Lower 48 States outside of the East North Central Census Region likely contributed to the smaller-than-normal withdrawals of natural gas from storage. (See Temperature Map) (See Deviations Map)

Recent Natural Gas Market Data

Other Market Trends:

EIA Finds Little Synergies with the Opening of ANWR and the Alaska Gas Pipeline: The opening of the 1002 area of the coastal plain in Alaska's Arctic National Wildlife Refuge (ANWR) to oil and gas development is expected to have little impact on the development of an Alaska gas pipeline, according to an analysis by the Energy Information Administration (EIA). In response to an inquiry by U.S. Representative Richard Pombo, EIA on Tuesday, March 16, released an assessment of authorizing oil and gas leasing in the ANWR coastal plain, as well as a determination on whether significant synergies existed with regard to the construction of the Alaska gas pipeline. The opening of ANWR might reduce the gas resource risk of building an Alaska gas pipeline, as the area has an estimated 3.6 trillion cubic feet (Tcf) of recoverable reserves, according to EIA. However, the National Petroleum Reserve-Alaska (NPRA) has a much larger estimated gas resource ranging between 40-85 Tcf, which is expected to be more than adequate to provide needed supplies to make the Alaska gas pipeline economical. EIA states that reserves of approximately 51 Tcf are required to make the pipeline economical. About 35 Tcf has already been identified in Alaska, including 26 Tcf in Prudhoe Bay and 8 Tcf in the Point Thomson Field. The opening of the ANWR area to drilling this year would result in oil and gas production beginning in 2013, according to the EIA analysis. In 2025, oil production in the coastal plain of ANWR is projected to reach 0.9 million barrels per day under the USGS mean oil resource case, and 0.6 and 1.6 million barrels per day under the low and high resource cases, respectively. Petroleum imports are projected to decline one barrel for every barrel of ANWR production. Opening the coastal plain of ANWR is projected to reduce 2025 oil import dependence from 70 percent to 66 percent in the mean resource case.

Central Gulf of Mexico Sale Attracts $369 Million in High Bids: Central Lease Sale 190, held in New Orleans on March 17, resulted in $369 million in high bids from 83 companies, according to the Minerals Management Service (MMS). The sale offered leases to 4,324 tracts comprising approximately 23 million acres offshore Alabama, Louisiana, and Mississippi. MMS said it received a total of 829 bids on 557 of the tracts, which was the highest number of bids received in a Central sale in the past 6 years. The highest bid was $35 million, submitted by Amerada Hess for Green Canyon Block 468. Magnum Hunter Production, Inc. submitted the largest number of high bids with 55 bids for a sum of $8 million, while BHP Billiton Petroleum was second with 32 bids for a sum of $18 million. The MMS said that 60 percent of the bids were for leases on the shelf, likely reflecting industry interest in deep gas in shallow water because of royalty relief measures announced earlier this year.

Summary:

Natural gas prices increased at most market locations since Wednesday, March 10, amid colder temperatures and rising oil prices. Likewise prices climbed at the NYMEX futures market from last week's level. As a result, prices in both the spot and futures markets now exceed last year's levels at this time. Working gas in storage decreased to 1,097 Bcf, which is nearly 6 percent below the 5-year average.

Natural Gas Summary from the Short-Term Energy Outlook