Natural Gas

Overview: Thursday, May 19 (next release 2:00 p.m. on May 26)

Natural gas spot prices dropped this week (Wednesday - Wednesday, May 11-18) at all market locations partly because of weak weather demand and a decrease in the price of crude oil. The Henry Hub spot price decreased 13 cents per MMBtu, or about 2 percent, while prices in California and the Rockies experienced more dramatic decreases of more than 24 cents per MMBtu at most market locations. Yesterday (May 18), the price of the New York Mercantile Exchange (NYMEX) futures contract for June delivery at the Henry Hub settled at $6.392 per MMBtu, decreasing 29 cents, or about 4 percent, since last Wednesday. Natural gas in storage as of Friday, May 13, increased 90 Bcf to 1,599 Bcf, which is 22.2 percent above the 5-year average. The spot price for West Texas Intermediate (WTI) crude oil declined $3.40 per barrel, or almost 7 percent on the week (Wednesday - Wednesday) to $46.99 per barrel or about $8.10 per MMBtu.

 

Prices:

All trading locations in the Lower 48 States experienced decreases in natural gas spot prices since last Wednesday, May 12. After steady increases the previous week, the Henry Hub spot price decreased about 2 percent, or 13 cents per MMBtu, to average $6.51 per MMBtu yesterday. Spot markets in the Rockies and California continued to react to weak demand as prices decreased this week between 24 and 52 cents in all locations but one. The one exception, Northwest-South of Green River, saw prices drop $2.30 per MMBtu on the week. Maintenance in the region has restricted supply through the Moab Compressor Station in Utah creating supply backup near this location. Pipeline companies in California have also issued high linepack operational flow orders in the past week indicating abundant supplies on the pipelines. In the Northeast, moderate temperatures kept weather-related demand low and prices dropped on average by 24 cents in all market locations. The spot price at the New York Transcontinental Gas Pipe Line Zone 6 decreased 22 cents per MMBtu this week to $6.91, the lowest spot price at this location since mid-February.

 

 

At the NYMEX, the price of the futures contract for June delivery at the Henry Hub decreased about 29 cents per MMBtu, or about 4 percent, since last Wednesday, May 12, to end the week at $6.392 per MMBtu. This price is the lowest for this contract since mid-February, but slightly higher than at this time last year. The decline in the futures contract price follows the drop in the price for crude oil, which is also at its lowest level since late February. The WTI spot price declined $3.40 per barrel this week, or about 7 percent, to $46.99 per barrel. Natural gas prices for futures contracts for the remaining months in this year's injection season (July 2005 - October 2005) decreased similarly to the June contract, about 33 cents per MMBtu on average, or roughly 5 percent. Beyond October 2005, futures contract prices declined at a diminishing rate for all months until April 2006, with each month's decline smaller than that of the previous month. The 12-month strip, which is the average price for contracts over the next year, closed yesterday at $7.02 per MMBtu, which is 23 cents or about 3 percent lower than last Wednesday.

 

Recent Natural Gas Market Data

 

Estimated Average Wellhead Prices
	Nov-04	Dec-04	Jan-05	Feb-05	Mar-05	Apr-05
Price ($ per Mcf)	6.07	6.25	5.52	5.59	5.98	6.44
Price ($ per MMBtu)	5.91	6.08	5.37	5.44	5.82	6.27
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 1,599 Bcf as of Friday, May 13, 2005, which was 22.2 percent above the 5-year average, according to EIA's Weekly Natural Gas Storage Report.(See Storage Figure) The implied net injection for the week of 90 Bcf was 22 percent higher than the 5-year average of 74 Bcf and 7 percent higher than last year's net injection of 84 Bcf. With the relatively high injection in comparison with last year and the 5-year average, inventories remain well above historical levels. Total storage levels rose to 223 Bcf more than last year and 291 Bcf more than the 5-year average. One factor contributing to the large injections of gas was moderate, spring-like temperatures for most of the nation during the report week, as measured by heating degree days (HDDs) and cooling degree days (CDDs) published by the National Weather Service for the week ending May 12. Although degree-day measures for some Census regions showed large percentage differences from normal, actual temperatures were not extreme enough to stimulate weather-related demand. (See Temperature Maps) Another factor leading to the higher injections may have been the large premium in futures prices for delivery of supplies next winter. As of last Thursday, May 12, the differential between the Henry Hub spot price and the NYMEX futures price for January delivery was about $1.30 per MMBtu, providing a strong incentive to place gas in storage.

Other Market Trends:

Pipeline Companies Report Ruptures: ANR Pipeline and Natural Gas Pipeline of America (NGPA) each reported ruptures on the southwestern portions of their pipelines last week. ANR Pipeline, a subsidiary of El Paso Corporation, said preliminary indications are that a pipeline belonging to a third party ruptured, and the resulting fire spread to ANR's Custer Compressor Station near Weatherford, Oklahoma, on Tuesday, May 10. ANR is currently assessing damages to the compressor station. No injuries resulted from the incident. ANR has maintained service to all primary firm customers throughout the incident. The second rupture occurred on Kinder Morgan's Natural Gas Pipeline about 2:30 a.m. on May 13^th about 150 miles east of Dallas near the Texas-Louisiana border at Entergy's 484 NM Harrison County Power Project. Three workers suffered minor injuries. The pipeline rupture resulted in a fire in the power plant's cooling tower, which caused it to shut down.

The 2005 Hurricane Outlook: On May 16, 2005, the National Oceanic and Atmospheric Administration released its latest hurricane forecast for the upcoming hurricane season. According to the release, this year's hurricane season is expected to be more severe than normal, as 12 to 15 tropical storms are predicted, 9 of which are expected to turn into hurricanes and 3 to 5 of those into major hurricanes. The hurricane season begins in June and lasts until late November. The 2004 hurricane season exhibited above normal activity levels. Hurricane Ivan, which hit the Gulf in September 2004, was the most destructive storm in several years to offshore oil and gas production.

 

Summary:

Natural gas spot prices decreased at all market locations in the Lower 48 since last Wednesday, May 12, with the most dramatic decreases occurring in the Rockies and California. The June futures contract settled yesterday at $6.392 per MMBtu, which is 29 cents or about 4 percent lower than last week. Working gas in storage increased to 1,599 Bcf, which is 22.2 percent above the 5-year average.

 

Short-Term Energy Outlook