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EIA Raises Projections for 2006, 2007 Spot Gas Prices

The Energy Information Administration (EIA) in its Short-Term Energy Outlook for November has raised its projections for average spot natural gas prices this year and next now that the winter heating season has officially gotten under way and industry begins to draw down the bulging storage levels that have helped to depress prices over the past couple of months.

"Daily natural gas spot prices, which fell throughout September because of moderate temperatures and high inventories in underground storage, have risen sharply in recent weeks. This price movement was not unexpected once the heating season began. Henry Hub natural gas spot prices are projected to average $7.06/Mcf in 2006 and increase to an average of $7.79/Mcf in 2007," the EIA said in its monthly outlook, which was released Tuesday.

Last month, the agency estimated that the average spot price this year would be $6.90/Mcf, and that the average spot price for 2007 would be $7.53/Mcf. Spot gas prices averaged $8.86/Mcf in 2006.

"Relatively high levels of natural gas in storage and a forecast of slightly warmer-than-normal weather (though not as warm as last winter) should keep Henry Hub spot prices below $9/Mcf through the winter heating season," it said. The EIA projects the monthly average spot price will peak in January at roughly $8.70/Mcf.

Working gas in storage for the week ended Oct. 27 was 3,452 Bcf, 288 Bcf above the year-ago level and 276 Bcf above the five-year average for that date, according to the EIA. This is close to the EIA's estimated maximum working gas storage capacity of about 3,600 Bcf. Working gas inventories are expected to end the winter (March 31, 2007) at about 1,405 Bcf, 285 Bcf below the level of 1,690 Bcf reached at the end of last winter, but still about 150 Bcf above the average of the last five years, the agency said.

"Our forecast of winter heating fuel expenditures has not changed significantly from last month. Average household heating fuel expenditures are projected to be $928 this winter compared to $947 last winter," the EIA noted. It said this will be the first winter since the winter of 2001-2002 in which home heating fuel expenditures are not projected to significantly increase over the prior winter. Gas-heated households are expected to see the biggest savings this winter, spending an average of $826 compared to $945 last winter season.

Natural gas consumption is expected to stay flat at 21.88 Tcf this year, but increase by 1.3% to 22.17 Tcf in 2007, according to the EIA. "Residential and commercial sector consumption grow by 7.5% and 3.9%, respectively, in 2007, as the number of heating degree-days is expected to increase by about 7%. Industrial sector natural gas consumption is expected to show only modest growth of 1.2% over 2006. Power sector consumption, on the other hand, is expected to decline by 4.3% in 2007, following 7.4% growth in 2006, as total cooling degree-days next year are expected to be about 12% lower than 2006."

The EIA sees domestic dry gas production rising by about 1.3% this year to 18.47 Tcf and by 0.4% to 18.55 Tcf in 2007. Net imports of natural gas are expected to show a 6.1% decline to 3.39 Tcf this year from 3.61 Tcf in 2005. But they are slated to increase by 2.6% in 2007, primarily due to the rise in liquefied natural gas (LNG) imports, it noted.

"Projected LNG imports in 2006 are below 2005 levels because of price competition from Europe. The growing availability of supplies from liquefaction facilities in Trinidad and Tobago and Nigeria contribute to the expected increase in LNG imports in 2007. However, U.S. LNG imports will continue to be affected by price competition from other LNG-consuming economies, particularly in Europe," the EIA said.

LNG imports into the U.S. are on track to fall to 0.61 Tcf this year from 0.63 Tcf in 2005, but are slated to increase to 0.81 Tcf in 2007, according to the EIA. Gas pipeline imports, mainly from Canada, also are on course to decline this year to 3.50 Tcf from 3.71 Tcf in 2005, and are expected to remain flat in 2007.

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