EIA Predicts Supply Shortfall Will Linger Through Winter
The Energy Information Administration said in its September
Short Term Energy Outlook it is projecting natural gas prices at
the wellhead will increase by about 87% this winter (October-March)
compared to last winter. Residential prices for gas are expected to
rise on average by 27% compared to last year. For the entire year,
the average wellhead price for natural gas is projected to be
$3.40/Mcf, the highest annual wellhead price on record (in
inflation-adjusted terms, it would be the highest annual average
price since 1985).
The short-term supply constraints that are currently hindering
the industry's ability to meet storage and power generation demand
are likely to continue into the heating season, EIA said. Storage
levels could end up being about 8% below the five-year average of
about 3,000 Bcf by the start of winter if net injections continue
at 10% below historically average rates through the remainder of
the refill season.
The effects of increased drilling for gas are not expected to
appear in the form of significantly increased production until
after the next heating season, according to the agency's report.
"For now, we are continuing to maintain a conservative view of
possible increases in domestic gas production for 2000 and 2001,
with assumed increases of 0.5% and 1%, respectively, for this year
and next...," the EIA report stated. "On the other hand, the U.S.
natural gas rig count on Aug. 25 was at a recent high of 794 rigs.
Exploration and production budgets for many natural gas producers
are expected to increase sharply in 2000 and 2001, spurred by
higher prices and greatly improved current and expected revenues
from producing assets. Also on the positive side, data from the
Texas Railroad Commission suggest that, through May, year 2000 gas
production increased, if only slightly (0.4%). This signifies a
turnaround (however modest) in a key producing region. Very high
gas drilling rates, including a record-setting pace in deep
offshore Gulf of Mexico, confirm that increasingly positive results
for domestic gas production are under way."
Imports are projected to rise by about 12% next year primarily
because of the 1.35 Bcf/d Alliance Pipeline coming on line next
Meanwhile the demand outlook remains bullish at 4.2% annual
growth. In 2001, however, the forecast has been revised downward to
2.5% growth because of higher than expected natural gas prices. The
industrial sector is the leading sector for demand increases in
2000 at 9.3%, while electric utility demand is expected to decline
by 4.0% primarily because of power plant sales. For the power
generation sector as a whole, gas demand is expected to grow 6.5%
this year and 1.5% in 2001. EIA said the reduced growth rate next
year is largely due to the reversal in relative prices of fuel oil
and natural gas, which began in August, with fuel oil gaining the
price advantage as gas prices continued to rise.
Gas demand this winter is expected to be up by 5.7% compared to
last winter if weather is normal. Normal weather implies a 12% rise
in heating degree-days compared with last winter.
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