Natural Gas

Overview: Thursday, September 22 (next release 2:00 p.m. on September 29)

Since Wednesday, September 14, natural gas spot prices have increased at all market locations in the Lower 48 States, owing to the aftermath of Hurricane Katrina and the approaching Hurricane Rita. For the week (Wednesday-Wednesday), prices at the Henry Hub increased $3.45, or about 32 percent, to $14.25 per MMBtu. Yesterday (September 21), the price of the NYMEX futures contract for October delivery at the Henry Hub settled at $12.594 per MMBtu, increasing roughly $1.43 or about 13 percent since last Wednesday (September 14). Natural gas in storage was 2,832 Bcf as of September 16, which is 3.4 percent above the 5-year average. The spot price for West Texas Intermediate (WTI) crude oil increased $1.76 per barrel, or about 3 percent, on the week to $66.96 per barrel or $11.54 per MMBtu.

 

Prices:

Natural gas prices surged in the face of continued hurricane activity, as damage caused by Hurricane Katrina and the approach of Hurricane Rita continue to disrupt gas production in the Gulf of Mexico and give a boost to prices. According to the Minerals Management Service (MMS), as of yesterday, September 21, 4.7 Bcf of natural gas was shut in. This is about 45 percent of the daily 10.4 Bcf natural gas production in the Federal Gulf of Mexico. The cumulative natural gas production shut-ins since August 26 were 125.2 Bcf, amounting to about 3.3 percent of the total annual production in the Gulf. Natural gas price increases since last Wednesday, September 14, were widespread, ranging between $2 and $4 per MMBtu at most market locations. Prices at the Henry Hub climbed $3.45 or about 32 percent since last Wednesday, with 41 percent of the increase occurring in yesterday's trading. The Henry Hub spot price as of yesterday was $14.25 per MMBtu, the highest level since the February 25, 2003, price of $18.85 per MMBtu. Highest increases on the week were clustered along the Gulf Coast, as the potential threat of Hurricane Rita continues to exacerbate the already tight natural gas market, resulting in increases between $2.03 and more than $5.24, or about 21 and 47 percent. California and the Rocky Mountain region market locations recorded the smallest price increases on the week, as prices rose by an average of $1.83 and $1.97, respectively. Continuing difficult weather conditions are obstructing efforts to assess the storm damage to natural gas infrastructure in the region, and according to various sources it could take months to restore production in the Gulf of Mexico to its former levels. (See Other Market Trends) Prices at the Henry Hub on August 26, prior to the arrival of Hurricane Katrina in the region, were $4.66 above the late-August 2004 level. Subsequently, the Henry Hub spot price has risen to yesterday's level of $14.25, which exceeds the September 21, 2004, level by more than $8 per MMBtu.

 

 

At the NYMEX, the price of the futures contract for October delivery at the Henry Hub increased $1.43 per MMBtu or nearly 13 percent since last Wednesday, September 14, to $12.594 per MMBtu. The futures contracts for delivery during the heating season months exhibited a similar pattern of rising prices, as prices climbed about 10 percent. The October 2005 contract as of yesterday traded at a discount of $1.66 per MMBtu to the Henry Hub spot price. Futures contract prices for each month from November 2005 through March 2006 exhibited a similar pattern to the October contract price as they also traded at a discount of between 48 cents and $1.25 per MMBtu. The 12-month strip, which is the average price for contracts over the next 12 months, closed yesterday at $11.784 per MMBtu, an increase of slightly more than $1, or about 9 percent on the week.

 

Recent Natural Gas Market Data

 

Estimated Average Wellhead Prices
	Mar-05	Apr-05	May-05	Jun-05	Jul-05	Aug-05
Price ($ per Mcf)	5.98	6.44	6.02	6.15	6.69	7.68
Price ($ per MMBtu)	5.82	6.27	5.86	5.99	6.51	7.48
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 September 16 totaled 2,832 Bcf, which is 3.4 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 74 Bcf, which is nearly 8 percent below the 5-year average net injection of 80 Bcf but about 3 percent above the net injection of 72 Bcf during the report week last year. This marks a return to the pattern of below-average injections that has persisted for 11 out of the last 12 weeks. Current storage levels remain 92 Bcf more than the 5-year average. This is the first time since June 24, 2005, that the net change exceeded last year's levels, after 11 consecutive weeks of net injections falling below last year's levels. During the report week, temperatures were slightly warmer-than-normal on average 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 September 16 were only 16 more than normal, which is an implied temperature difference from normal of only about 2 degrees. All Census regions east of the Rocky Mountains region experienced greater than normal CDDs. While warmer than normal temperatures and continuing shut-ins of natural gas production in the Gulf of Mexico would tend to reduce the level of injections for the week, the 6-month futures strip traded at a significant premium to the Henry Hub spot price throughout the report week, providing economic incentives to continue injecting gas into storage.

 

 

Other Market Trends:

Hurricane Katrina Caused Damage to Key Ports in Louisiana: Two weeks after Hurricane Katrina swept through the Gulf, damage caused by the storm is still being evaluated. Three Louisiana ports, Morgan City, Fourchon, and Venice normally supply about 56 percent of the Gulf's deepwater exploration and production materials. While Morgan City was spared from Katrina, the port of Fourchon was out of service for about two weeks, while Venice still remains offline and is presumed to have sustained major damage. Venice serviced offshore oil and gas operations in the eastern-central and central Gulf. The State of Louisiana's Office of Conservation identified and surveyed 149 operators with producing wells in an eight-parish (Jefferson, Lafourche, Orleans, Plaquemines, St. Bernard, St. Charles, Terrebonne, and Washington) region regarding the status of their production. According to the survey, as of September 21, the restored volumes of gas and oil production in the eight-parish region are about 434 million cubic feet (MMcf) per day of natural gas production and 28,701 barrels of oil per day. Reported shut-in production is 490 MMcf per day of gas and 84,571 barrels of oil per day in the eight parish region. Out of 2,641 oil and gas wells producing before Katrina, 761 in the eight-parish region have been restored to production. Furthermore, 1,651 wells, or 63 percent of the wells in the region, reportedly remain shut-in.  The status of 229 wells, or 8.7 percent of the wells in the region, is still unknown as there were no reports regarding their status as of September 21. As of Wednesday, September 21, the U.S. Minerals Management Service (MMS) reported shut-ins of 4.7 billion cubic feet (Bcf) per day of natural gas and 1,097 thousand barrels of oil per day in the Federal Gulf of Mexico.

 

Summary:

Natural gas prices increased across the board since last Wednesday, September 14, as the effects of Hurricane Katrina and the approaching Hurricane Rita continue to significantly reduce natural gas production in the Gulf of Mexico. Working gas in storage increased to 2,832 Bcf, which is 3.4 percent above the 5-year average.

Short-Term Energy Outlook