The probability that Henry Hub natural gas will average $5/MMBtuduring this winter heating season is 50%, while the chance forprices rising to $6/MMBtu is 20% if the weather is 5% colder thanaverage, according to Energy and Environmental Analysis Inc. (EEA).

Even if there is a repeat of the warm winter of 1999-2000, whichpublic and private weather forecasters doubt will occur, gas priceswould manage to stay at the respectable level of $4/MMBtu, saidKevin Petak, director of EEA, an Arlington, VA-based energyconsulting firm. At the other extreme, he sees only a 3% chance fora recurrence of a winter like that of 1976-1777, which was thecoldest in recent history.

“Because the supply/demand balance is very tight, gas storagewill be heavily relied on to maintain system reliability and keepprices in check” this winter, he noted. “As a result, storage islikely to be drawn down to very low levels.”

Petak anticipates a mere 20% probability that working gas levelswould dip below 200 Bcf by the end of winter. At the same time,however, he sees only a 25% chance that working gas levels wouldexceed 750 Bcf at the end of March – which would be the lowestlevel reported by the Energy Information Administration (EIA) inthe past five years.

“The heavy withdrawals of gas storage that occurred last winterare likely to repeat this winter, but the amount of gas to workwith is more limited this year,” Petak said.

“Even though gas productive capacity will build as a result ofdrilling activity,” he forecasts that a low amount of storagerefill “is likely to keep summer prices high” next year. EEA sees a50% probability that Henry Hub gas prices will average near orabove $4/MMBtu during next year’s injection season. But it predictsthere’s a 15% chance that prices could rise to an average of$5/MMBtu next summer if the weather puts further stresses on thetight supply/demand situation..

The EEA expects increased gas productivity from high drillingactivity to begin moderating prices in 2002, with prices fallinginto the $3/MMBtu range. “It will take some time for supply tocatch up with demand and for storage levels to get back up tohistorical levels,” Petak said.

Susan Parker

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