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EIA: High Prices in 2003 Took Toll on Gas Demand

EIA: High Prices in 2003 Took Toll on Gas Demand

Domestic consumption of natural gas fell by an estimated 2.6% during 2003 due largely to the high gas prices that destroyed demand in the industrial and electric power sectors, according to the Energy Information Administration's Short-Term Energy Outlook for January.

Demand dropped to 21.93 Tcf last year from 22.52 Tcf in 2002, the Department of Energy (DOE) agency estimated. It anticipates a reversal of the trend in 2004, with demand to inch upward to 22.19 Tcf, and further growth in 2005 (22.6 Tcf).

"Expected growth in the economy, along with somewhat lower projected annual average natural gas prices, are expected to push 2004 demand up by 1.2%. Demand in 2005 is expected to increase 1.8% as the economy continues to expand and prices ease slightly," the EIA said in its first short-term energy outlook of the new year.

It said domestic dry gas production rose about 2% in 2003 in contrast to analysts' predictions of a significant drop. The EIA expects domestic production to rise slightly in 2004 to 19.58 Tcf, and continue to expand in 2005. Imports are expected to rise to 3.31 Tcf after falling in 2003 to 3.26 Tcf from 3.49 Tcf in 2002.

The EIA predicts that wellhead gas prices will average $5.39/Mcf during the first quarter of 2004, level out at $4.50 in the second and third quarters, and then climb towards the $5 mark late in the year. It sees the composite spot price hitting $5.57 in the first quarter, leveling out to $4.80/Mcf in the ensuing two quarters, and then reaching $5.32 at the end of the year.

"Spot prices well above $5/MMBtu remain likely over the next few months if normal, or colder, weather prevails," as is now the case in the Northeast, Midwest and other regions of the country, the agency said. Citygate prices in the Northeast topped the $10 level this week.

But the EIA cautioned that "natural gas storage levels are now slightly above average and may move prices back down if warm temperatures and weak heating demand occur later this winter, just as rising prices are possible if the weather becomes colder."

Gas prices are anticipated to average just below $5 for the entire year, and slip to $4.83/MMBtu in 2005 "under the assumption that domestic and imported supply can continue to grow by about 1-1.5% per year," the EIA noted.

For the current heating season, the agency said the typical gas-consuming household will use about 5 Mcf less gas than last winter, but will pay more than a year ago -- $866 compared to $799 in 2003.

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