EIA: Supply Fears Prop Up Spot, Futures Prices
Due to warm winter weather in certain regions last month,
increased fuel switching and industrial slowdowns, the country
consumed 140 Bcf less natural gas than was anticipated in January,
which led to much lower spot gas prices towards the end of the
month, according to the Energy Information Administration's (EIA)
Short-term Energy Outlook for February.
While this is good news for consumers and the energy market in
general, it doesn't erase all of the "uneasiness about the supply
situation," or cancel out the fact that spot prices continue to be
"quite high by historical standards," said the EIA, the statistical
arm of the Department of Energy (DOE), last week.
Although spot prices slumped below $6/Mcf by the end of January,
they averaged a record $8.98/Mcf for the entire month, the agency
said. It projected prices will average about $6.14/Mcf for the
entire winter (October-through-March period), which is more than
two and half times that of last winter. The EIA sees prices falling
during the spring and summer by about $4/Mcf from the winter peak,
assuming normal weather and low storage levels persist. Still, it
doesn't expect them to dip much below the $4 mark throughout 2001.
Working gas storage at the end of January was 38% full, or 1,241
Bcf. "Although this points to an improvement for end-January stocks
over previous expectations, with almost two months of winter still
to go, continuing fears about the domestic supply situation are
helping to maintain relatively high spot and futures prices," the
EIA reported. "Still, given recent spot price movements, a drop of
about $3 per Mcf is possible in February, compared to the January
average [of] $8.98."
Overall gas demand last month was up about 5%-6% over last year,
but this was nearly half of the growth that was witnessed during
November and December (13%), according to the EIA. Assuming normal
weather, it projects demand will grow by 2.3% in the year ahead and
by 4.1 % during 2002. This compares to a demand growth of 4.3% for
To meet the anticipated growth in consumption, the EIA sees gas
production significantly increasing by 5.4% during 2001 and by 2.5%
in 2002, compared to a 1.1% growth level last year. It further
predicts that gas imports - mostly from Canada - will rise about
16% this year and by another 4% in 2002. It cited a new report by
Canada's National Energy Board that predicts gas deliverability
from western Canada will rise by 1.1 Bcf/d by 2002 due to the
ongoing drilling boom. Western Canada provides about 15% of the gas
consumed in the United States.
In California, the agency doesn't foresee an immediate end to
the power and gas supply crunch. "The situation in California is
characterized by low gas storage, gas pipeline bottlenecks, high
demand and low hydro and nuclear electric power availability. These
supply problems are following on last summer's supply problems with
no obvious end visible over the next two years."
©Copyright 2001 Intelligence Press, Inc. All rights
reserved. The preceding news report may not be republished or
redistributed in whole or in part without prior written consent of
Intelligence Press, Inc.