Natural Gas

Overview: Thursday, January 27 (next release 2:00 p.m. on February 3)

Cold temperatures in parts of the Midwest and the Northeast lifted aggregate demand this week, resulting in higher natural gas spot prices at most market locations in the Lower 48 States. For the week (Wednesday-Wednesday, January 19-26), spot prices at the Henry Hub increased 23 cents per MMBtu, or about 3.7 percent, to $6.44. Prices in the Northeast surged as extreme wintry conditions moved into the region, and constraints on interstate pipelines limited supply options for incremental deliveries. Yesterday (January 26), the price of the futures contract for February delivery at the Henry Hub settled at $6.388 per MMBtu, increasing roughly 10 cents, or 1.5 percent, since last Wednesday. Natural gas in storage was 2,270 Bcf as of January 21, which is 14.0 percent above the 5-year average. The spot price for West Texas Intermediate (WTI) crude oil gained $1.19 per barrel or about 2.5 percent since last Wednesday, climbing to $48.80 per barrel or $8.41 per MMBtu.

 

Prices:

There was little respite this week from extreme winter conditions in major population centers in the Midwest and Northeast. Alberta clippers, which swept through the Midwest and Northeast, had a widespread impact of increasing prices throughout the country, although the largest increases were localized. Prices in the Northeast region surged an average of almost $4 per MMBtu in a week of highly variable regional price movements. Prices in the Northeast spiked last Thursday in anticipation of extreme cold in the region. Although trading on Friday and Monday resulted in steep price declines, prices returned to elevated levels on Wednesday (January 26) as overnight lows in the Northeast were expected to be in the single digits. Prices off Transcontinental Gas Pipe Line in New York and Algonquin Gas Transmission in the New England region yesterday averaged $22.27 and $18.94 per MMBtu, respectively, up $7.41 and $5.67 from the previous Wednesday. Large increases in weather-driven demand and constrained pipeline capacity in the region contributed to the sharp increases in prices. Along the Gulf Coast and in West Texas, natural gas spot price increases since last Wednesday (January 19) generally ranged between 10 and 40 cents per MMBtu. Another impetus for higher energy prices was the higher crude oil prices with the WTI price once again climbing close to $50 per barrel.

 

 

 

At the New York Mercantile Exchange (NYMEX), the price of the futures contract for February delivery at the Henry Hub increased 9.5 cents per MMBtu, or 1.5 percent, since last Wednesday (January 19). Similarly, the price of the futures contract for March delivery at the Henry Hub, which takes over as the near-month contract on January 28, increased 9.4 cents per MMBtu. As in the spot markets, the February contract was traded at higher prices than last year at this time. The February 2004 contract expired at $5.775 per MMBtu, about 11 percent lower than the price of the February 2005 contract in trading yesterday. The 12-month strip, or the average price for contracts over the next year (February 2005 to January 2006), gained 14.7 cents per MMBtu to $6.60.

 

Recent Natural Gas Market Data

 

Estimated Average Wellhead Prices
	Jul-04	Aug-04	Sept-04	Oct-04	Nov-04	Dec-05
Price ($ per Mcf)	5.60	5.36	4.86	5.45	6.07	6.25
Price ($ per MMBtu)	5.45	5.21	4.73	5.30	5.91	6.08
Note: Prices were converted from $ per Mcf to $ per MMBtu using an average heat content of 1,027 Btu per cubic foot as published in Table A4 of the Annual Energy Review 2002.
Source: Energy Information Administration, Office of Oil and Gas.

 

Storage:

Working gas in storage was 2,270 Bcf for the week ending January 21, according to EIA's Weekly Natural Gas Storage Report This left inventories 14 percent above the previous 5-year average for the week(See Storage Figure). Implied net withdrawals were 230 Bcf, or about 39 percent more than the previous 5-year average. The large net withdrawal reflects the impact of cold temperatures that prevailed across the East during the week ending January 22 (See Temperature Map) (See Deviations Map). For example, gas customer-weighted heating degree days (HDDs) in the high-gas-consuming New England and Middle Atlantic Census Divisions were both 32 percent above normal, according to the latest data from the National Weather Service. The cold temperatures contributed to a net drawdown in stocks in the East that was 31 percent above the 5-year average. According to the National Weather Service, HDDs exceeded normal in five of the nine Census regions, and HDDs for the country as a whole exceeded normal by 10 percent.

 

 

Other Market Trends:

Natural Gas Rig Count Achieves New Record: The number of natural gas drilling rigs hit a new record for the period in which rigs running have been reported by fuel type. Rigs drilling gas prospects hit 1,084 for the week ending January 14, 2005, and were again at this level last week, according to Baker Hughes Incorporated. Natural gas rigs are 138 more than last year, which is a 15 percent increase. Natural gas rigs made up 86 percent of the total U.S. drilling for the week. Natural gas rigs drilling have comprised at least 85 percent of the total number of rigs drilling since the end of May 2003.

 

Summary:

Cold temperatures increased natural gas demand in most parts of the country, contributing to higher spot prices at most market locations. Prices surged in the Northeast as an Arctic front moved into the region. Prices increased at the NYMEX futures market from last week's level. Working gas in storage decreased to 2,270 Bcf, which is 14.0 percent above the 5-year average.

 

Short-Term Energy Outlook