1 EIA does not directly collect wellhead production and price data from natural gas producers. The data are obtained from State and Federal (MMS) royalty and severance tax collection efforts. Because of the time delay in reporting measured data, EIA provides estimates of monthly wellhead prices.

2 The Sabine Pipe Line is connected to an additional 13 pipelines outside the Henry Hub site: ANR, Bridgeline, Centana, Channel, Cypress, Florida, HPL, Meches, Midcon, Olympic, Tejas, Tennessee, and Transco.

3 Represents maximum Henry Hub throughput under optimal conditions. See Sabine Pipe Line, LLC, web site www.sabnet.com/ henry.htm.

4 Energy Information Administration, Natural Gas Annual 2000, DOE/EIA-0131(00) (Washington, DC, November 2001), Table 2, p. 8, web site www.eia.doe.gov/pub/oil_gas/natural_gas/data_publications/natural_gas_annual/current/pdf/table_002.pdf. Average U.S. daily consumption calculated as 22,547 billion cubic feet per year (total U.S. consumption) minus 427 billion cubic feet per year (Alaska’s total consumption) divided by 365 days per year.

5 This figure is even smaller when compared with peak consumption periods. For example, the 1.8 billion cubic feet per day of Henry Hub capacity is only 2.1 percent of the peak month consumption of 84.9 billion cubic feet per day during the winter of 2000-2001, which occurred in January 2001. See Energy Information Administration, Natural Gas Monthly December 2001, DOE/EIA-0130(2001/12) (Washington, DC, December 2001), Table 2, p. 6, web site http://tonto.eia.doe.gov/FTPROOT/natgas/ngm/01300112.pdf. Approximately 1 billion cubic feet of Alaskan gas consumption is included in the January 2002 total natural gas consumption of 2,632 billion cubic feet.

6 Energy Information Administration, U.S. Crude Oil, Natural Gas, and Natural Gas Liquids Reserves: 2000 Annual Report, Table 8, p. 28, web site www.eia.doe.gov/pub/oil_gas/natural_gas/data_publications/crude_oil_natural_gas_reserves/current/pdf/ch4.pdf. Based on offshore Gulf of Mexico production, plus South Louisiana onshore production, plus gas production from onshore Texas Railroad Districts 1 through 6. In 2000, total production of dry natural gas in these regions was 9,389 billion cubic feet, as compared with total U.S. production of 19,219 billion cubic feet.

7 “Marketed” natural gas production includes nonmethane natural gas liquids (e.g., ethane, butane, propane), which are removed by separation plants near the point of production. The resulting “dry” natural gas, which is predominantly methane, is ready for transport to end users. In 2000, 1,016 billion cubic feet of natural gas liquids was removed from 20,002 billion cubic feet of “marketed” gas production. Energy Information Administration, Natural Gas Annual 2000, Table 2, p. 8.

8 Based on telephone conversations with NGW staff.

9 For this analysis, the Henry Hub prices were converted into dollars per thousand cubic feet for comparison with the wellhead gas price. A separate gas production conversion factor was used for each year, based on the number of Btu per cubic foot reported in EIA’s Natural Gas Annual (Table B2) for each particular year. For the period covered by the NGW data, the conversion factors ranged from 1,025 to 1,031 Btu per cubic foot.

10 Information regarding the econometric test performed and the results of the test are available upon request.

11 For this portion of the analysis, the price series were converted to constant 2000 dollars using the monthly Bureau of Labor Statistics, Producer Price Index—All Commodities (BLS series ID: WPU00000000; not seasonally adjusted).The price conversion to annual 2000 dollars was accomplished using the monthly producer price index in conjunction with the annual index for 2000 of 132.7.

12 The median value represents the midpoint in the distribution of observed values, with half the observations above the median and half below the median.

13 The median value of 23.6 cents per thousand cubic feet is the same both for the January 1995 through December 2000 period and for the August 1996 through December 2000 period, which further recommends the use of this number in preference to the mean value.

One benefit of this approach is that the calculated result does not require converting nominal dollar prices into real dollar prices.