Natural Gas

Overview: Thursday, January 19 (next release 2:00 p.m. on January 26, 2006)

Changes in natural gas spot prices were mixed this week (Wednesday-Wednesday, January 11-18), as colder weather boosted demand for space-heating in the eastern half of the country and moderate temperatures in part led to continued price declines in the West. For the week, the price at the Henry Hub increased 30 cents, or about 3.5 percent, to $8.85 per MMBtu, as colder weather returned to the East. At the New York Mercantile Exchange (NYMEX), the price of the futures contract for February delivery dropped 47 cents per MMBtu yesterday (January 18) to $8.694, a 6-month low for the February 2006 contract, on expectations of moderate temperatures for the rest of the heating season. The near-month contract decreased roughly 54 cents since last Wednesday (January 11), and is now also trading at a 5-month low for a near-month contract. Natural gas in storage was 2,575 Bcf as of January 13, which is 16.3 percent above the 5-year average. The spot price for West Texas Intermediate (WTI) crude oil increased $1.85 per barrel, or nearly 3 percent, on the week to $65.76 per barrel or $11.34 per MMBtu.

Prices:

Spot markets responded to the return of winter-like weather this week with increases in natural gas spot prices occurring at most market locations in the eastern half of the country. After losing 70 cents per MMBtu in value the previous week, the Henry Hub spot price rose 30 cents to $8.85 per MMBtu this report week. Major consuming markets for space-heating in the Northeast and Midwest exhibited gains averaging 31 cents and 13 cents per MMBtu, respectively. At the New York citygate off Transcontinental Gas Pipe Line, the spot price increased 38 cents per MMBtu to $9.46, a premium of 61 cents per MMBtu over the Henry Hub price. Despite increases this week, prices in the Northeast are still far below the $10-plus prices in late 2005. In contrast to trading in the East, price declines mostly characterized trading west of the Mississippi, with decreases ranging mostly between 5-25 cents per MMBtu. At Ventura, Iowa, the price for next-day delivery off Northern Natural Gas fell 6 cents per MMBtu to $8.03. The price for deliveries at the trading point in Opal, Wyoming, fell 11 cents per MMBtu to $7.53 per MMBtu, as the major pipeline at the trading location, Kern River Gas Transmission, reported conditions of high linepack for much of the week.

Expectations of more moderate temperatures moving into much of the country led to NYMEX futures prices for delivery in the rest of the heating season (February-March) falling this week by relatively large amounts. The near-month contract (for February delivery) declined for the week by 54 cents per MMBtu, as it settled yesterday at $8.694, the lowest settlement price for the near-month contract since early August. The February contract is trading $2.53 per MMBtu lower than on the first day of its tenure as the near-month contract. This contract is also priced 44 percent less than its peak price of $15.43 per MMBtu on December 13, 2005. Nonetheless, at its settlement price yesterday, the February contract was still $2.41 per MMBtu higher than the final settlement price of $6.288 for the February 2005 contract. While the futures contract for March delivery declined nearly 49 cents per MMBtu to $8.878 per MMBtu, prices for contracts for the rest of the year exhibited smaller decreases at an average of 31 cents per MMBtu. The 12-month strip, which is the average price for futures contracts over the next 12 months, closed yesterday at $9.45, a decrease of 34 cents since last Wednesday.

Recent Natural Gas Market Data

Storage:

Working gas in storage was 2,575 Bcf as of Friday, January 13, which is 16.3 percent above the 5-year average inventory level for the report week, according to EIA's Weekly Natural Gas Storage Report (See Storage Figure). This is the second largest inventory for this date in 12 years since 1994 (the period for which there is weekly data). The implied net withdrawal of 46 Bcf continues a series of net withdrawals for report weeks since late December that have been well below average for this time of year. By way of comparison, the 5-year (2001-2005) average net withdrawal for the report week is 131 Bcf and the net withdrawal last year was 107 Bcf. Continued moderate temperatures throughout the country likely mitigated space-heating demand, making it less necessary to withdraw from storage inventories (See Temperature Maps). Temperatures, as measured by heating degree days (HDDs), were between 22 and 41 percent above normal for all Census divisions for the week ending January 12, according to the National Weather Service. In particular, warmer-than-normal temperatures continued in key consuming markets, such as the Middle Atlantic and East North Central where HDDs were 29 and 33 percent above normal, respectively. The continuation of some shut-in production from the Gulf of Mexico owing to Hurricanes Katrina and Rita reduced supplies again this week by about 13 Bcf, according to data from the Minerals Management Service.  

Other Market Trends:

Natural Gas Transportation Update: The return of winter weather across much of the Lower 48 States caused a number of natural gas pipelines to take precautionary measures to correct imbalances on their transportation systems that resulted from higher demand during the week.

• El Paso announced Tuesday, January 17, that its linepack was stabilized at a manageable level and that a possibility of a Strained Operating Conditions (SOC) order was significantly reduced. El Paso had previously reported that the company might have to issue an SOC as a result of receipt underperformance and takes in excess of scheduled quantities. Because the system was being drafted at unsustainable rates, the company placed performance caps on receipt points that were not performing up to scheduled quantities and urged shippers to bring their supplies in balance with their takes.
• Northwest Pipeline Corporation announced that it was accepting requests starting Wednesday, January 18, for interruptible storage at its Jackson Prairie Storage facility. Northwest noted that if it becomes necessary to utilize this storage capacity for firm obligations, shippers with interruptible storage would be given a 7-day notice to reduce their working gas inventory to a level specified by Northwest.
• On Saturday, January 14, Natural Gas Pipeline Company of America (NGPL) changed the acceptable hydrocarbon dew point limits on its system until further notice. In a December 13 announcement, the company reported that as a result of experiencing an increase in the measured hydrocarbon dew point temperature of gas flowing into its northern market area, the limits will be reduced in order to prevent unacceptable levels of hydrocarbon condensate.
• Columbia Gulf said that on Friday, January 20, the company will begin accepting up to 75,000 dekatherms (Dth) per day in receipt nominations from both Discovery Gas Transmission and DMS-Venice Plant.
• There were 1,224 rigs drilling for natural gas in the United States as of Friday, January 13, 2006, according to Baker-Hughes Incorporated. The current number represents a 17 percent increase over the number of active rigs at this time last year (January 14, 2005), and maintains the trend of historically high U.S. rig counts as high natural gas prices create economic incentives for exploration and development of natural gas resources. At the end of 2004, natural gas rigs in North America numbered 1,058, which was slightly below that year's high count of 1,082. Since the beginning of 2005, only three weekly rig counts have been below the 2004 high count with totals surpassing 1,100 by mid-March, and reaching over 1,200 by the beginning of June. The growth in the gas rig count reflects increases in the average wellhead natural gas price, which in 2004 was about $5.49 per thousand cubic feet (Mcf) compared with the 2005 price of $7.45 per Mcf. The current record for natural gas rigs is 1,273, which occurred during the week ending September 30, 2005. Although the total number of rigs has increased significantly in the past year, the proportion of total U.S. rigs that is operating in the Gulf of Mexico has decreased over the same time period. One factor contributing to the decline is the hurricane damage sustained during the late summer of 2005. There are 34 rigs drilling for natural gas in the Gulf of Mexico as of January 13, 2006, which is less than half the average level during August 2005 and is the lowest count in this region during the period for which Baker-Hughes has available data (July 1987 to present). The number of rigs in the Gulf of Mexico at this time last year was 91, and the record number of natural gas rigs in this region was 134, which occurred during the week ending August 11, 2000. Higher energy prices have also supported an increase in the number of wells drilling for crude oil over the past year. There are currently 241 crude oil rigs, which represent an increase of about 40 percent over this time last year with most of the increases occurring since mid-June. Although both natural gas and crude oil rigs increased in number, crude oil rigs as a percentage of total rigs grew from almost 11 percent to more than 16 percent between mid-June and the present. In June, the West Texas Intermediate price for crude oil rose to more than $10 per MMBtu for the first time.

 

Short-Term Energy Outlook