The Energy Information Administration (EIA) cut its Henry Hub natural gas price forecast for 2006 by nearly a dollar in its latest monthly Short Term Energy Outlook (STEO), but the agency remains unconvinced that gas prices this year will be much lower than in 2005.
While EIA now shows Henry Hub prices averaging $8.87/Mcf this year compared to $9/Mcf in 2005, it expects residential consumers and power generators to still pay more for gas than what they paid last year. Residential consumers are expected to pay on average about $13.36/Mcf this year compared to $12.73 in 2005. Last month's STEO predicted residential consumers would pay about $14.57/Mcf this year.
January was 27% warmer than normal, pushing gas prices lower than predicted in the previous Outlook. The warmer weather provided households some relief from this year's expected increase in heating fuel expenditures. However, EIA said that winter residential space-heating expenditures for gas consumers are still projected to be $178 (24%) higher than what was paid last winter.
Households heating with heating oil can still expect to pay $195 (16%) more this winter than last. And households heating with propane can expect to pay on average $150 (14%) more this winter than last, EIA said. Households heating primarily with electricity can expect to pay $36 (5%) more than last winter.
Total natural gas demand in 2006 is projected to remain near 2005 levels, dropping only about 0.23% this year to 22.10 Tcf, and then increasing by 2.3% in 2007. Residential demand, in particular, is projected to slip from 2005 levels but then increase by 3.3% in 2007. Demand for natural gas for power generation is expected to fall by 2.1% in 2006 because of the warm January and the assumed return to normal summer weather. However, demand for generation next year is projected to increase by 2.2%. Industrial gas demand is projected to grow 3.1% this year and 2.2% next year.
Meanwhile, EIA slightly lowered its dry gas production forecast to show a 2.99% increase in 2006 to 18.63 Tcf with Gulf of Mexico production rising 12.3% to 3.48 Tcf due to the hurricane recovery. Domestic dry natural gas production in 2005 is estimated to have declined by 2.7%, owing mainly to the hurricane-induced infrastructure disruptions in the Gulf of Mexico, the agency said. EIA expects 255,000 bbl/d of crude oil production and 400 MMcf/d of natural gas production to remain offline prior to the start of the next hurricane season on June 1. Other Lower 48 dry gas production is projected to rise this year by 1.3% to 14.71 Tcf.
EIA is expecting a 33.3% jump in LNG imports this year to 0.84 Tcf and a 27.4% increase in 2007 to 1.07 Tcf. The agency forecasts a 3.3% increase in pipeline gas imports (Canada) to 3.77 Tcf.
Prices for crude oil and petroleum products are projected to remain high through 2006 before starting to weaken in 2007, EIA said. The price of West Texas Intermediate (WTI) crude oil, which averaged $56 per barrel in 2005, is projected to average $65 per barrel in 2006 and $61 in 2007.
On Jan. 27, working gas in storage stood at an estimated 2,406 Bcf, which is the highest level for this time of year since 1989. Stocks are 296 Bcf above one year ago and 529 Bcf above the five-year average. Much of the current excess in storage is accounted for by unexpectedly warm winter weather, particularly in January, EIA noted.
"While concerns about potential future supply tightness and pressure from high oil market prices are keeping current and futures prices for natural gas high (at about $8 to $9/Mcf at the Henry Hub), any further weakening of natural gas demand (from weather or other factors) could cause a sharp downward correction in prices during 2006," the agency said.
Electricity demand is expected to increase by 0.5% in 2006 and by an additional 2% in 2007 due mainly to weather conditions and continuing economic growth.
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