July Prices for Natural Gas Fall Between 25 and 70 Cents from June, NGI Reports

    DULLES, Va.--July 2, 2003--Reacting to a string of super-healthy storage refills and forecasts of a cool summer in the eastern and midwestern population centers, July natural gas price indexes dropped between 25 and nearly 70 cents per MMBtu from the prices recorded in the June bidweek, according to the Bidweek Survey published by Natural Gas Intelligence Tuesday. The benchmark Henry Hub pricing point in Louisiana, which is the physical delivery location for the natural gas futures contract, averaged $5.29 per MMBtu, or 67 cents less than June average of $5.96.
    The month-to-month drop conformed to the New York Mercantile Exchange July futures contract which dropped 47 cents on expiration day last Thursday to close at $5.291 per MMBtu, down 65.4 cents from the June contract's final resting place of $5.945.
    The price drops were the most marked, from 40 to 60-plus cents, at trading points along the Gulf Coast and in the Northeast and Midwest. At Rocky Mountain and California delivery points, which have seen higher summer temperatures, the drop-off was considerably less, generally hovering between 25 and 35 cents. Nevertheless, prices for gas delivered to California still were well under those for gas supplying market areas in the Midwest and Northeast.
    Regional average prices reported by NGI were: California $5.25/MMBtu, down 35 cents; Rockies $4.63, down 29 cents; Midwest $5.57, down 54 cents; Northeast $5.76, down 64 cents; Louisiana $5.29, down 63 cents; South Texas $5.16, down 63 cents; East Texas $5.29, down 57 cents; and West Texas $5.14, down 34 cents.
    The national spot gas average for July reported by NGI was $5.26, down 50 cents from June 1.
    The July market downturn marks a sharp reversal from June, when index gains from the previous month were nearly a dollar at most points. The June strength was largely derived from a prompt-month futures advance exceeding 80 cents, but it also was in an atmosphere of greater concern over filling storage by the upcoming winter heating season. A string of 100 Bcf-plus injection reports during June helped alleviate some of that concern, traders agreed.
    The latest weekly storage report released June 26 by the Energy Information Administration features a 127 Bcf injection, which brought working gas in storage to 1,565 Bcf as of the week ending June 20. The latest refill topped the 125 Bcf put into storage two weeks prior and surpassed virtually all market expectations, which had centered on a 105-120 Bcf build.
    At 1,565 Bcf, storage is now 653 Bcf less than last year at this time and 370 Bcf below the five-year average of 1,935 Bcf. And while it may sound like a price-constructive situation, the deficit is down considerably from its peak in April when storage was a whopping 891 Bcf less than its comparable 2002 mark.
    "This 127 (Bcf) number is a very large number no matter how you slice it," said EIA's Bill Trapmann in an interview with NGI. "There is no reclassification from base gas to working gas inventories. The 127 Bcf injection is all working gas."
    With another strong weekly storage fill in the books, analysts have been busy recalculating their models in an attempt to project an October 31 start-of-winter inventory level. Using the recent 4.5 Bcf per day increase over historical injection figures and assuming normal weather from now until November, Thomas Driscoll of Lehman Brothers in New York contemplates a season-ending storage level of 3,200 Bcf. In the nearly 10-year history of storage figures available from the government, storage has surpassed 3,200 Bcf only twice -- in November of 2001 and November of 1998.
    Demand destruction, or fuel-switching and/or shut-down of industrial customers who use natural gas in their processes and production, due to high prices, along with only moderate air conditioning load in the East and Midwest, has been credited with allowing a window of opportunity for local distribution companies and utilities to inject more gas this spring than ever in the nearly 10-year history of EIA storage data.

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