Pointing to warmer-than-normal weather and still-bulging natural gas inventories, the Energy Information Administration (EIA) in its Short-Term Energy Outlook for December projected that spot gas prices would remain under $9/Mcf throughout the winter heating season. The price prognosis was basically unchanged from the EIA's forecast last month (see Daily GPI, Nov. 8).
Henry Hub spot gas prices averaged $7.63/Mcf in November due to warmer weather, the agency said. "While a return to normal weather could increase pressure on the Henry Hub spot price, high levels of natural gas in storage and the forecast of slightly warmer-than-normal weather are expected to keep natural gas spot prices below $9/Mcf on average through the heating season," the EIA said in the monthly outlook, which was released Tuesday.
It further forecast that January 2007 spot gas prices will peak at roughly $8.71/Mcf, about $0.65/Mcf higher than the first quarter of 2006. The EIA sees spot prices averaging $7.06 /Mcf in 2006 and $7.87/Mcf in 2007, up from its previous projected average of $7.79/Mcf for 2007. Spot gas prices averaged $8.86/Mcf in 2005.
Working gas in storage was 3,406 Bcf at the start of December, 232 Bcf above the year-ago level and 282 ahead of the five-year average. The EIA projects that working gas inventories will finish out the winter (March 31, 2007) at 1,430 Bcf, which is 260 Bcf below the 1,690 Bcf that was in storage at the end of the last heating season but still above the five-year average.
Due to the warm weather earlier this year, the EIA estimates that gas consumption for the year will decline by 0.5% 21.9 Tcf. With a return to more normal weather, it sees consumption recovering in 2007 and growing by 1.5% to 22.22 Tcf. Both residential and commercial sector gas demand is likely to rise by 6.9% and 3.6%, respectively, in 2007, the agency said. Gas consumption by the industrial sector is expected to reach its highest level since 2004 with a 1.6% rise in demand, while power sector demand is expected to decline by 3.6% next year.
On the supply end, domestic dry gas production is project to increase by about 2.3% to 18.66 Tcf this year, only to fall slightly by 0.7% next year to 18.53 Tcf, according to the EIA. High storage levels and the drop in residential and commercial sector gas demand were responsible for a 5% decline in net gas imports in 2006, the agency noted. It expects net imports to remain basically unchanged next year, with a sizable increase in liquefied natural gas imports (LNG) offsetting a decline in pipeline shipments from Canada.
Despite strong projections of LNG supply in 2007, the EIA said imports will continue to be affected by price competition in the global market.
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