In the latest of a string of bullish reports for the gasindustry, the Energy Information Administration’s (EIA)recently-published Short-Term Energy Outlook projected prices inthe coming months to be 25% to 30% higher than last winter. It alsosaid that demand, which the EIA said rose by less than 1% in 1999compared to 1998, is poised to grow 4.6% in 2000. The demand jump,which puts the consumption level at 22.4 Tcf, represents anincrease of 1 Tcf over 1999’s consumption levels.

These large increases are in line with other reports issuedrecently that also predict major increases. In November, the EIA’sAnnual Energy Outlook predicted gas prices would increase 1.7%/yearto finish at $2.81/Mcf by 2020. Earlier this month, the NationalPetroleum Council issued a forecast calling for a 32% increase indemand over the next 10 years. This increase would put gas demandat 29 Tcf by 2010 (see NGI, Dec. 20).

On the pricing side, the EIA’s new study admitted that its priceincrease percentage was skewed because last winter’s prices weregreatly depressed. In addition, oil prices were also depressedduring that period, and the two worked together to hold down theprice of gas during that year. “Nevertheless,” the EIA said,”because of the depressed gas prices seen last winter, the averagewellhead price this winter will be notably higher (about 25% to30%) than last winter’s price of about $1.80/Mcf.”

Aiding this winter’s price strength are storage levels. Althoughthey are currently more than the average of the past three years,they are also almost 200 Bcf less than the level recorded at theend of 1998. Looking ahead to the next two years, the EIA expectsgas prices to remain flat.

Interestingly, the EIA said that if prices act as this studypredicts, then natural gas’ advantage as the preferred fuel forelectric generation may be harmed. Thanks to a range of factors,including the decline in use of oil for power generation undercurrent prices, lagged effects of the oil price increases occurringsince last spring, and impact from downstream stockpiling in late1999, oil prices are expected to fall in 2000 and 2001, giving gascompetition for electric generation.

After sinking 3% in 1998, the EIA said gas demand experienced aslight rebound of 0.8% in 1999. Thanks to a warmer-than-expectedfourth quarter, residential and commercial demand only experienced”scant improvement” over 1998 levels.

Going forward, all sectors are expected to demonstrate healthydemand growth, with consumption levels expected to reach 22.6 Tcfby 2001. The demand push will be led by the residential andelectric sectors, the EIA said, with improvements of 7.3% and 8.4%in 2000 over 1999’s levels.

Imports will continue to skyrocket, the report said. Afterposting an 11% increase in 1999 over 1998 levels, imports areexpected to jump another 7.3% next year and another 4% in 2001.These increases are based on the oncoming influx of gas from Canadafrom such projects as the Northern Border pipeline and thesoon-to-be-in-service Alliance project.

John Norris

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