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Despite Record Pulls, EIA Sees 1.64 Tcf in Storage at End of Winter

Despite record withdrawals from working gas storage early this year, the Energy Information Administration (EIA) in its Short-Term Energy Outlook for February projects that inventories will finish the heating season at the lofty level of 1,644 Bcf. This is 90 Bcf below what it projected in its outlook in January (see NGI, Jan. 18).

"Colder-than-normal temperatures in the first half of January led to the largest consecutive-week withdrawal on record as a total of 511 Bcf was pulled from storage during the weeks ending Jan. 8 and 15. The withdrawals over these two weeks were a combined 317 Bcf above the average withdrawal for the corresponding weeks over the previous five years," the EIA said in its outlook, which was released last Wednesday.

"However, weather turned considerably warmer during the second half of January, and working gas stocks over the last two weeks fell by 201 Bcf, compared with the previous five-year average withdrawal of 357 Bcf. Despite the large inventory draws in December and early January, EIA expects working gas inventories to finish the first quarter...at about 1,644 Bcf, or 7% higher than the previous five-year average," the agency said. This figure is likely to be revised again in March as much of the country has been facing frigid temperatures.

"The relatively high inventory level combined with the increased supply potential from domestic resources should keep prices from rising dramatically this year," the EIA said. It projects that the Henry Hub spot price will average $5.37/MMBtu this year and $5.86/MMBtu in 2011.

The EIA sees total marketed gas production in the current year declining 2.6% to 58.73 Bcf/d from 60.3 Bcf/d in 2009, and then increasing by 1.3% in 2011. The number of working natural gas rigs is currently about 25% below the year-ago level, but the EIA noted that the number has increased during the last month by about 100 rigs to a total of 861 rigs at the end of January.

"Current 2010 futures market prices between $5.50 and $6.70 per MMBtu appear to provide the necessary economic incentive to expand drilling programs even further. As a result, EIA expects monthly natural gas production to begin to slowly increase later this year and continue on an upward trend through the end of 2011," the EIA said.

It projects that U.S. pipeline imports will fall by 8.3% to 8.1 Bcf/d in the current year due to the sustained impact of lower Canadian drilling activity and production, as well as increasing demand from oilsands projects in Western Canada. A portion of the decline in pipeline imports this year is likely to be offset by imports of liquefied natural gas (LNG), which were double year-ago levels in January as temperatures plummeted and prices rose. The EIA projects that LNG imports will reach 1.83 Bcf/d this year, up from 1.27 Bcf/d in 2009.

The outlook for higher U.S. LNG imports is largely due to the recent global LNG additions in Russia, Yemen, Qatar and Indonesia, according to the EIA. It anticipates that net imports of natural gas will decline in 2011 as flows from Canada remain limited and global demand for LNG strengthens.

On the demand side, the agency expects gas consumption to increase 0.4% to 62.5 Bcf/d this year from 62.28 Bcf/d last year, and then rise another 0.4% in 2011. "Very cold weather during the first half of January, particularly in the Southeast, contributed to an 8.4% jump in the monthly estimate for electric power-sector natural gas consumption from the previous forecast," the agency noted, adding that this was a new record for the electric sector for the month.

"Although natural gas consumption in the electric power sector has been strong so far this year, an increase in coal-fired generation capacity and higher natural gas prices through the remainder of the year should reduce the share of natural gas-fired generation in the baseload power mix in 2010...The projected 1.3% decline in electric power-sector natural gas use is offset by growth in residential, commercial and industrial sectors in the 2010 forecast."

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