Residential natural gas customers should expect “upward pressure” on prices this upcoming winter due mostly to an expanding economy, potentially colder than normal weather and a tight balance between supply and demand, the Natural Gas Supply Association (NGSA) said in its outlook for the 2004-2005 winter heating season that was released last Thursday.

“This winter, demand is expected to increase across all sectors. On the flip-side, domestic production is down slightly from last winter, caused largely by a steeper decline rate for maturing fields… This tight market could really impact customers’ bills in some regions, particularly during extreme weather,” said NGSA Chairman Joseph A. Blount, president of Unocal Midstream and Trade.

At a joint press briefing with Washington Gas Light (WGL), NGSA projected that demand for the five-month heating season would rise 4.4% to 76.5 Bcf/d from 73.3 Bcf/d last winter. On the supply side, it expects U.S. production for the winter period to dip slightly to 49.7 Bcf/d from 50 Bcf/d last year, with Canadian imports to rise to 10 Bcf/d and liquefied natural gas (LNG) imports to hit 2.2 Bcf/d. It estimated 3,200 Bcf of gas will be in storage at the start of the heating season, of which about 2,200 Bcf (14.6 Bcf) most likely would be used during the period. This would put total winter supply at approximately 76.3 Bcf/d.

Overall there is a “pretty good [supply] situation” heading into the winter, Blount told reporters. Storage in particular is in a “pretty good situation.” But he noted that “supply and demand continue to struggle,” making for a tight market.

The NGSA, which represents major producers, refused to forecast gas prices for the upcoming winter, but it noted that the price of gas injected into storage for the 2004-2005 season was $5.80/Mcf compared to $5.16/Mcf in the 2003-2004 winter season. The Energy Information Administration (EIA) and a number of independent analysts are predicting gas prices could be in the $6 area on average throughout winter.

On Friday, the price for the November gas futures contract closed at $6.772/Mcf, down 2.3 cents from Thursday’s close. This followed a wild run-up earlier in the week in which prices shot past the $7 mark.

The producer group cited a number of “wild cards” that could play havoc with prices this winter: more shut-ins of Gulf of Mexico gas production if the hurricane season continues its aggressive path, infrastructure disruptions, Middle East unrest (causing oil prices to soar and natural gas to rise in sympathy), and the outcome of the presidential election.

Blount said he expects much of the Gulf natural gas production that was knocked off-line as a result of Hurricane Ivan to return in a “week or two.”

The National Oceanographic and Atmospheric Administration (NOAA) is forecasting a colder-than-normal winter in the East and a warmer-than-normal winter in the West, which the NGSA says would cause customers around the country to see more regional differences in terms of home heating bills and other energy costs. The group also believes the expanding economy (both the manufacturing sector and the Consumer Price Index are up over last year) and potential greater energy demand this winter will put upward pressure on gas prices.

Officials with Washington Gas Light, which serves metropolitan Washington, DC, and surrounding areas, said they expect winter gas bills for the average customer (using 2,171 therms of gas) to rise 2% to $944 for the five-month season. But if the weather turns out to be colder than projected, they conceded the gas bills would be higher.

To shield its customers from escalating gas costs, WGL officials told reporters that it uses storage to serve 35% of customer demand during the heating season. In addition, it has hedged 26% of what the company expects to be normal supply.

But NGSA’s Blount pointed out that stored gas may not offer price protection this winter. “Because the gas placed in storage this year cost more to produce, when it re-enters the market this winter, it will do so at higher-than-previous costs.”

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