EIA Sees Depressed Spot Market Until 4Q
The current storage surplus and expected "normal" temperatures
this summer (14% cooler than last summer) will continue to put a
damper on spot prices until the fourth quarter of this year, the
Energy Information Administration predicted yesterday in its
Short-Term Energy Outlook. The EIA said wellhead prices should
remain below $2/Mcf until November.
EIA's latest data show storage at the end of the first quarter
was 160 Bcf higher than year-ago levels. Working gas in storage at
the end of the heating season (March 31) was at an estimated 1,354
Bcf, the highest level at the end of March since 1992, EIA said.
The surplus probably will hold down gas prices below prices at the
same time a year ago until the fourth quarter. The EIA expects
wellhead prices to average $1.74/Mcf in the second quarter, $1.80
in the third quarter and $2.16 in the fourth quarter, compared with
$2.07, $1.92 and $1.88, respectively, last year.
By the fourth quarter the decline in gas deliverability because
of the sharp drop in drilling this year will begin to take its
toll. EIA said it expects U.S. gas production to decline by about
0.5% to 18.83 Tcf in 1999 because of the extended period of low
commodity prices and the resulting drilling decline. Imports are
expected to increase to 3 Tcf this year from 2.97 Tcf in 1998.
".We project natural gas prices to stay relatively moderate,
peaking for the year at $2.35 /Mcf in December. Next year, with the
assumption of normal winter weather (which would imply 8-9% higher
heating degree-days for the heating season), natural gas prices at
the wellhead are projected to grow by about 15%. Underlying this
forecast are first quarter 2000 underground natural gas storage
level projections that are 6% below year-earlier levels, while at
the same time, total gas demand is expected to be about 7%
EIA is projecting total gas demand will grow at annual rates of
2.8% in 1999 and 2.5% in 2000. Except for industrial gas demand,
which is projected to be flat, gas demand is expected to grow
across all sectors in 1999 and 2000 under the assumptions of normal
weather conditions and continued, although slowing, economic
growth. Residential and commercial demand for natural gas in 1999
is projected to rebound from the decrease seen in 1998, when the
weather during the heating season was relatively mild. Electricity
demand for natural gas is also expected to continue to grow, but at
a somewhat slower pace than the high rate of 9.9% seen in 1998.
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