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EIA's Demand, Price Projections Continue to Decline

The outlook for natural gas demand and prices continues to edge down in 2009, according to the Energy Information Administration's (EIA) monthly Short-Term Energy Outlook issued last week.

With the Henry Hub spot price averaging $5.40/Mcf in January, 60 cents/Mcf below the average December spot price, EIA has dropped its full-year projection from an estimated $5.78/Mcf in its mid-January report to an average $5.01/Mcf, and from an expected $6.63/Mcf to $5.93/Mcf in 2010 (see NGI, Jan. 19).

EIA's total natural gas consumption outlook for 2009, which a month ago was projected to decline 1%, now is expected to drop by 1.3% this year. At the same time EIA's expectation of a 0.7% increase in 2010, now has been set at 0.6%.

The government agency said the expectation of some weather-driven consumption growth in the residential and commercial sectors in 2009 "is outweighed by the implications of continued economic weakness in the industrial and electric power sectors. Consumption in the industrial and electric power sectors is expected to decline by 5.1 and 1.0%, respectively, in 2009."

Going forward, consumption growth in 2010 will depend on economic recovery. EIA sees a possible 2.2% growth in the electric power sector combined with slight growth in the residential and industrial sectors contributing to 2010 consumption growth.

Drilling curtailments are expected to continue to cut into overall production, but nevertheless, EIA believes production will rise slightly in 2009 and by 1.1% in 2010.Even shut-ins may come into play in the last half of 2009 in order the balance the market.

In the Lower 48 states -- and excluding the Gulf of Mexico (GOM) -- production is expected to increase by 1.1% due to the low operating cost of wells currently in use and the lagged effect of aggressive drilling programs during the latter part of 2008. In contrast, the natural decline in production from existing fields and long-term decline in drilling activity are expected to lead to a 6.4% decrease in production in the U.S. GOM this year. In 2010, annual production is projected to decline relative to 2009 in the U.S. GOM and Lower 48 states by 6.3 and 0.6%, respectively.

EIA also cut its projections for imports of LNG from about 420 Bcf, previously expected this year to just 369 Bcf, just slightly above the estimated 350 Bcf imported in 2008. LNG volumes in 2009 will depend in part on start-ups of liquefaction operations in Russia, Norway, Qatar and Yemen. Imports could gain to 463 Bcf in 2010.

While year-over-year surpluses in natural gas storage declined measurably in January, working gas in storage still was slightly above the five-year average at the end of the month and EIA is projecting a season-ending total March 31 of about 1.5 Tcf, roughly 100 Bcf above the average. This fall, inventories are expected to approach the previous high of 3,565 Bcf recorded at the end of October 2007.

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