Natural Gas

Overview: Thursday, August 25 (next release 2:00 p.m. on September 1)

Since Wednesday, August 17, changes to natural gas spot prices were mixed, decreasing in major consuming areas in the Northeast and Midwest, while increasing at most markets in the Rocky Mountains, California, and West Texas regions. For the week (Wednesday–Wednesday), prices at the Henry Hub increased 2 cents to $10 per MMBtu. Yesterday (August 24), the price of the NYMEX futures contract for September delivery settled at $9.984 per MMBtu, increasing about 59 cents or more than 6 percent since Wednesday. Natural gas in storage was 2,575 Bcf as of August 19, which is 5.6 percent above the 5-year average. The spot price for West Texas Intermediate (WTI) crude oil increased $3.81 per barrel, or about 6 percent, on the week to a record high price of $67.10 per barrel, or $11.57 per MMBtu.

 

Prices:

Spot price changes were mixed since last Wednesday, August 17, with decreases occurring at Northeast and Midwest market locations and other major gas consuming areas. Although increasing crude oil prices exerted upward pressure on natural gas prices, milder temperatures likely contributed to the price decreases. Price declines in the Northeast and the Midwest ranged between 5 and 67 cents per MMBtu since last Wednesday with most decreases exceeding 20 cents per MMBtu. On the week, the largest price increases of as much as 56 cents per MMBtu tended to cluster in the Midcontinent and the Southwest, as these regions experienced temperatures above 100 degrees since Monday. Furthermore, outages of the 1,243 MW Palo Verde nuclear units in Arizona magnified gas supply problems in western markets. California points recorded comparatively smaller increases of up to 16 cents per MMBtu as a customer-specific high-linepack operational flow order (OFO) by PG&E limited the price increases at regional markets. As of August 24, 2005, the spot prices at most market locations in the Lower 48 States are 66 to 94 percent higher than last year's levels.

 

 

At the NYMEX, settlement prices for the futures contracts for delivery in September and October exhibited weekly increases for a fourth consecutive week. The near-month contract (for September delivery) increased $0.593 per MMBtu since last Wednesday to settle yesterday (August 24) at $9.984, which is a record high price for any near-month contract. The October 2005 futures contract also increased $0.600 per MMBtu, or 6.4 percent, to settle at $10.019 per MMBtu. Higher prices for crude oil and petroleum products that serve as alternatives to natural gas and the possible threat from potential storms or hurricanes also likely influenced the upward movement in natural gas futures prices. Yesterday, as the price of crude oil rose $1.29 per barrel to an all-time high of $67.10, the price of the near-month natural gas contract increased $0.301 per MMBtu. The NYMEX contract for January 2006 closed yesterday at $10.999 per MMBtu, which is the highest price of any futures contract ever listed on the NYMEX. Contracts for the next heating season (November 2005 through March 2006) increased by an average of nearly 61 cents per MMBtu to settle at an average of approximately $10.767 yesterday, which represents a $0.767 premium to the Henry Hub spot price. Contracts for delivery in January and February 2006 have a price premium of close to $1 per MMBtu relative to the spot price.

 

Recent Natural Gas Market Data

 

Estimated Average Wellhead Prices
	Feb-05	Mar-05	Apr-05	May-05	Jun-05	Jul-05
Price ($ per Mcf)	5.59	5.98	6.44	6.02	6.15	6.69
Price ($ per MMBtu)	5.44	5.82	6.27	5.86	5.99	6.51
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 as of August 19 totaled 2,575 Bcf, which is 5.6 percent above the 5-year average inventory level for the week according to EIA's Weekly Natural Gas Storage Report (See Storage Figure). The net addition to storage was 60 Bcf, which is nearly 7 percent below the 5-year average net injection of 64 Bcf and nearly 28 percent below the net injection of 83 Bcf during the report week last year. This marks the eighth consecutive week that the implied net injection for the report week was lower than the 5-year average injection, which has reduced the difference between current storage levels and the 5-year average to 136 Bcf from 227 Bcf at the beginning of the injection season (April 1). Similarly, this is the eighth week in a row that the net change was below last year's levels, bringing storage levels this year to 27 Bcf below the same week last year. Throughout much of the report week, temperatures were once again considerably warmer-than-normal, also for the eighth consecutive week, according to the number of cooling degree days (CDDs) as measured by the National Weather Service (See Temperature Maps). CDDs for the Lower 48 States for the week ending August 18 numbered about 16 percent more than normal and 73 percent greater than last year. All Census regions east of the Rocky Mountains region with the exception of the West North Central region experienced greater than normal CDDs. The largest deviations from normal occurred in the Northeast, as CDDs in the New England and Middle Atlantic regions numbered, respectively, 34 and 49 percent more than normal.

 

 

Other Market Trends:

MMS Requests Comments on Next 5-Year OCS Leasing Plan: The Minerals Management Service (MMS) announced in a notice in the Federal Register on August 24 that it is soliciting comments through October 11, 2005, on the development of its 5-year leasing plan for energy development on the Outer Continental Shelf (OCS) and accompanying environmental impact statement. The announcement is the first step in a 2-year process to develop the leasing plan, and the public is asked to comment not only on energy development, but also on other economic and environmental issues in the OCS area. Although presidential withdrawals and congressional moratoria have made more than 85 percent of the OCS unavailable to energy development, the recently passed Energy Policy Act of 2005 requires MMS to conduct a comprehensive inventory and analysis of the oil and natural gas resources for all areas of the OCS. MMS is also asking the public to comment on whether the existing moratoria should be modified or expanded to include other areas of the OCS. According to the MMS, the OCS contains billions of barrels of oil and trillions of cubic feet of natural gas.

 

Summary:

Spot prices were mixed as milder temperatures prevailed in major gas consuming areas, while certain parts of the country continued to experience scorching heat. Futures prices for gas delivery in September and October increased for the fourth consecutive week as increasing petroleum prices and supply uncertainty caused by the threat of tropical storms continue to boost the futures market. Futures prices for delivery in the coming heating season increased significantly and carry a notable premium over current cash prices.

 

Short-Term Energy Outlook