EIA Raises Price Forecasts, Confirms Dire Storage Situation
The Energy Information Administration (EIA) again raised its
wholesale and retail gas price projections for the winter and
confirmed that gas storage levels at the end of December were lower
by 10% than the previous record low set in 1976.
Strong demand during November and December, which the National
Weather Service has said were the coldest on record, reduced gas
stocks to record lows for the period, and continued cold should
keep storage low and prices very high for the remainder of the
heating season, EIA said in its January Short Term Energy Outlook.
For the fourth quarter of 2000, gas-weighted heating degree-days
were estimated to have been up by 28% over 1999's relatively mild
fourth quarter. Gas demand increased 10% over the year prior. Over
the entire six months of winter (Oct. 1, 2000 to March 31, 2001),
EIA projects demand will rise by 7% compared to the prior winter,
with residential and commercial sector demand up by 17%.
EIA now expects wellhead prices to average $5.20/Mcf in 2001
compared to an estimated $3.70 in 2000 (72% higher than in 1999)
and about $4.50 projected for 2002. It also raised its projections
on retail prices to 70% above winter 1999-2000 levels.
The expected 45% increase in the nominal average residential
price would be the highest season-to-season growth rate since at
Wellhead prices from September through November were more than
double the price of a year earlier. For the month of December, spot
wellhead prices averaged "an unheard of $8.36/Mcf. Never have spot
gas prices at the wellhead been this high for such a sustained
period of time," EIA said. "Although high oil prices have
encouraged the current strength in gas prices, the predominant
reason for these sustained high gas prices was, and still is,
uneasiness about the winter supply situation."
The American Gas Association (AGA) reported last week that
working gas levels in storage had fallen 209 Bcf during the week
ending Dec. 29 to 1,729 Bcf. "Translating the AGA data into EIA
end-month statistics, we estimate that gas stocks were about 780
Bcf below year-ago levels and about 520 Bcf below the previous
5-year average," EIA said. "With almost three months of winter
still to go, falling stocks have raised fears about the domestic
supply situation, helping to elevate spot and futures prices."
The AGA made its own announcement last week, assuring the public
that gas supply would be "adequate to meet customers' needs for the
remainder of the winter heating season.
"Today, there is more natural gas held in underground storage
--- 1.73 Tcf --- than has ever been removed from storage during the
remainder of any of the last five winter heating seasons," said AGA
President David Parker. Natural gas storage accounts for about 20%
of the natural gas consumed during the winter heating season, which
traditionally runs Nov. 1 - March 31.
"Rig counts are at record levels and new production will be
forthcoming," he noted. "But it takes time for new exploration to
produce adequate volumes of gas to meet increased demand."
In the meantime, Parker noted, utilities are promoting
energy-efficiency tips, reminding customers of flexible
bill-payment programs and working to help low-income individuals.
EIA expects wellhead prices to remain above $6 for the remainder
of the heating season, with prices averaging $6.23/Mcf this winter,
"more than two and one half times the price of last winter." EIA
predicts wellhead prices during the spring and summer will drop by
about $2/Mcf as weather-related demand recedes. However, storage
injection demand should keep wellhead prices above $4 this year.
Assuming normal weather, EIA expects gas demand to grow by 2.9%
in 2001 and by 2.7% in 2002, compared with estimated demand growth
of 4.5% in 2000. The forecast for overall demand growth in 2001 is
down considerably from EIA's projections last month because higher
gas prices have reduced expected industrial gas use (up 4% from
2000) more than previously estimated. In 2002, the forecast is for
even slower growth. However, gas demand from non-utility
electricity generation in 2001 is now expected to be up by a solid
9%. Electric utility gas demand is expected to remain level with
consumption rates in 2000.
EIA increased its projections on gas production growth in North
America to 5.4% for this year and 2.5% in 2002. It projects a
massive 16% increase in gas imports this year and another 4% hike
in 2002. "While Canadian export capacity may not be fully utilized
this winter, we expect net imports to be 7.8% higher than last
winter's imports," EIA said, noting that the 1.325 Bcf/d Alliance
Pipeline began service Dec. 1. EIA also referred to a recent report
by Canada's National Energy Board that predicts gas deliverability
from Western Canada will rise by 1.1 Bcf/d by 2002 because of the
ongoing drilling boom.