weely gas commentary:
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To view the Weekly Market Update with graphs, go to eia.doe.gov.
Prices in both cash and futures markets reached unprecedented
levels last week, as spot prices as high as $61 per MMBtu were
seen in southern California, and the NYMEX futures contract
for January delivery edged above $9.50 in after-hours "Access"
trading just before the opening of Thursday's regular trading
session on the NYMEX. Spot prices surged on Monday,
soaring higher each day through Wednesday, as temperatures
cooled significantly over the weekend of December 2-3 in the
Midwest and Northeast and tended to hover at or below normal
for the week, moderating slightly by week's end. In the four
cities monitored for this report, composite daily average
temperatures ranged from 4 to 12 degrees below normal. Prices
also seemed to derive strength from forecasts for a huge, frigid
Arctic air mass termed a "Polar Pig" to move into the lower 48
states beginning early this week. Except in California and
market locations serving that state, spot prices turned down on
Thursday and Friday, influenced in part by moderating
temperatures and by the American Gas Association's (AGA)
storage withdrawal estimate of 73 Bcf that was toward the lower
end of the market's expectations. Through Wednesday, spot
prices at the Henry Hub had gained $2.26 per MMBtu from the
previous Friday, but gave back 79 cents of this gain by Friday,
ending the week at $8.07. Price volatility in the futures market
was unprecedented, with trading in all contracts being
suspended for an hour on both Monday and Thursday as price
changes (up Monday, down Thursday) exceeded NYMEX
limits. Daily price swings for the January contract ranged from
$0.650 to $0.865 per MMBtu; Wednesday's trading produced an
unheard-of settlement-price gain of $1.101. The January
contract ended the week at $8.584 per MMBtu, a gain of $1.911
from the previous Friday. Meanwhile, the price of West Texas
Intermediate crude oil continued to erode, dipping below $30
per barrel for the first time since the second week of August,
dropping $3.60 per barrel to end the week at $28.45, or $4.91
per MMBtu.
Storage: Net withdrawals of 73 Bcf for the week ended Friday,
December 1 left nationwide natural gas inventories at an EIA-
estimated 2,414 Bcf 14 percent below EIA's average of 2,808 Bcf
for this point during the previous 5 years (1995-1999). While this
withdrawal estimate is half that of the previous week, it is
nonetheless relatively large for this point in the year. The heavy
gas-consuming East region accounted for 78 percent of the stock
drawdown with estimated withdrawals of 57 Bcf the second
highest draw for that region for this particular week of the heating
season over the past 5 years. As of December 1, East region
stocks were 7.3 percent below the 5-year average (1,714 Bcf). The
West region's 5 Bcf draw provided some respite from the
unusually high early-season withdrawal rate featuring three
straight weeks of double-digit withdrawals. Likewise, the
Producing region's 11 Bcf draw was modest in comparison to this
point in 1995 or 1996, but contrasts sharply with the results of
1998 and 1999, in which the region achieved net injections (7 and
5 Bcf, respectively) for the week.
Spot Prices: In the first 3 days of the week, many markets across
the country saw increases in a $0.30 to $1.50 per MMBtu range,
with prices ranging from the $9-teens to $9.31 per MMBtu on
Wednesday in the Southwest production basins and well over
$8.50 in most other locations. In the Northeast, increases ranged
from over $1.00 to over $5.00 per MMBtu each day, with prices
spiking as high as $36 on Transco Zone 6 for New York delivery
on Wednesday. But California was in a league by itself: price
increases grew from a range of $3.11-$3.86 on Monday to an
incredible $11.19-$17.16 on Friday, with some trades reported at
prices of $61.01 and $61 per MMBtu, respectively, on Friday on
SoCal and at PG&E citygates. Prices at Kingsgate and Sumas in
Washington State import points for Canadian gas bound mainly
for California spiked to $42.50 and $62.00 per MMBtu,
respectively. On Thursday, San Diego Gas & Electric Co. filed a
request with the Federal Energy Regulatory Commission for
emergency price relief from the astronomical prices, asking for a
price cap to be imposed through the end of March, 2001.
California continues to be plagued by extremely tight electricity
markets, with an estimated 11,000 MW of generating capacity off-
line, some of it at petroleum-fired plants that have exhausted their
pollution-emission credits. After a series of Stage 2 alerts, the
state's electrical-grid Independent System Operator instituted its
first Stage 3 electrical emergency on Thursday, forcing the
interruption of electricity customers where possible and bringing
on-line rarely-used backup capacity. On Friday, in anticipation of
the weekend arrival of the Polar Pig, the Regional Emergency
Response team for electricity supply in the Pacific Northwest
issued a warning of a potential emergency alert status 2. It is
anticipated that California and the Pacific Northwest will remain
at varying levels of alert status into the beginning of this week.
Futures Prices: Operating in uncharted territory last week, the
futures market saw settlement prices reach above $7, then above
$8 per MMBtu, for the first time ever. Only profit taking on
Tuesday and Thursday prevented a string of 5 record-highs in a
row. Trading in the near-month contract twice exceeded the 75-
cent or greater single price-change limit, halting trading for an
hour on both Monday and Thursday and prompting the NYMEX
to change the limit, effective Friday, December 8, to $1.00 and to
shorten the suspension time to 15 minutes. Further, as the value
of the futures contracts has risen, the NYMEX has increased its
margin requirements for traders five times since November 17.
The January contract reached an all-time high price of $9.539 per
MMBtu in Access trading Thursday morning, before settling on
Friday at $8.584. The February contract gained $1.733 from
Friday to Friday, settling at $8.266 per MMBtu.
Summary: Both spot and futures prices reached record levels in
many locations with almost two full weeks before the official start
of winter. With the near-term weather forecast calling for below-
normal temperatures for the entire nation everywhere West of a
line between New York and Mississippi, still higher prices could
be in the offing. |
