The Energy Information Administration has lowered its wellheadprice forecast for the year by several percentage points but saidwellhead prices during the first quarter of 1999 should show a hugeincrease (28%) from average prices during this year’s warm firstquarter.

In its Short-Term Energy Outlook, the EIA said it is expectingaverage annual natural gas wellhead prices to be about 13% lowerthis year compared to 1997 levels. The major culprit was the warmfirst quarter, which led to a 30% price decrease compared with1Q97, but high storage levels throughout the injection season alsoplayed a significant role in the weak market.

“With relatively high inventories, wellhead prices might havebeen under greater downward pressure this summer had it not beenfor a prolonged period of extremely hot weather in much of thecountry from June through August,” EIA noted. Electric utility useof natural gas was nearly 20% higher than last year in the secondquarter, and the third quarter figures will probably exceed thehigh levels of 3Q97, EIA said. “On balance, we expect wellheadprices for the third quarter to average about $1.94/Mcf or 8 centsless than one year ago. For the remainder of 1998 and for all of1999, a normal seasonal price pattern is projected: prices areexpected to rise in the winter quarters. However, given recenttendencies in the spot market, we have changed our fourth quarterprojection for wellhead prices to be about 10 cents/Mcf lower thanour previous forecast.” EIA expects prices to average $2.16/Mcf inthe fourth quarter and $2.23 in 1Q99.

For 1999, EIA expects a 13% rise in wellhead prices to $2.19,with the bulk of the increase in the first quarter as winterweather is assumed to be normal.

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