Working gas inventories are expected to start this upcoming winter heating season at the highest mark since 1990, keeping gas prices at depressed levels in comparison to prior years, according to the Energy Information Administration’s (EIA) Short-Term Energy Outlook for September that was issued last Tuesday.

Sharp declines in gas prices Friday to levels on average between $3.60 and $4.75 nationwide and below $2 at some points in the Rockies provided solid evidence for the bearish EIA forecast. After the EIA reported an unexpectedly high 108 Bcf storage injection last week for the week ending Sept. 8, the week-long gas price plunge accelerated. Storage levels are already above 3 Tcf.

Working gas storage levels are forecast to reach 3.429 Tcf at the end of October, which is 298 Bcf above the five-year average and 200 Bcf above the historical 3.2 Tcf level for the start of the winter season. Some experts earlier had predicted that the storage level could be as high as 3.7 at the end of October, but that was before this summer’s heat wave triggered a surge in demand from gas-fired power generation, leaving less supply available to put into storage.

As a result of the high storage level, the EIA revised downward its estimate for 2006 average Henry Hub spot prices to $7.51/Mcf from the $7.69/Mcf that it projected last month. This is down significantly from the average spot price of $8.86/Mcf in 2005. The Department of Energy agency expects annual spot prices to rebound to $8.30/Mcf in 2007.

In the near term, the EIA said it anticipates Henry Hub spot prices to hover around $6.74/Mcf in the third quarter, mirroring the prices that were experienced in the second quarter. However, the Hub was trading around $4.40 on Friday. And in the West, prices fell to the $1.70s on CIG and at Opal, WY.

EIA sees spot prices rebounding to $8.62/Mcf at the Henry Hub in the fourth period of the year, to be followed by an average of $9.48/Mcf in the first quarter of 2007.

“Barring extreme weather for the rest of the year, we expect the Henry Hub spot price to increase to an average of almost $10/Mcf by this January and then fall back to an average $7/Mcf by next summer,” the EIA said.

For the year, total domestic gas consumption is expected to be 21.63 Tcf, or about 240 Bcf below last year’s demand rate of 21.87 Tcf, according to the DOE agency. Gas demand is then likely to increase by 800 Bcf, or 4.1%, in 2007. Residential demand is expected to see a dip of 7.5% this year to 4.48 Tcf from 4.84 Tcf in 2005 due to the mild weather earlier in the year, to be followed by an increase of 9.2% in 2007, assuming normal weather, the EIA said.

The EIA sees dry natural gas production increasing by 1.1% this year to 18.45 Tcf and by 1.5% to 18.73 Tcf in 2007. Total liquefied natural gas net imports are likely to rise slightly from their 2005 level of 630 Bcf to 700 Bcf this year and to 940 Bcf in 2007.

Due to a warmer-than-normal June and July, EIA estimated that nationwide electricity consumption will increase 0.9% to 3,856.3 billion kilowatt hours (kWh) this year over 2005, and by 1.2% to 3,903.4 billion kWh in 2007. Residential power prices are likely to rise by 10.2% to 10.39 cents/kWh this year from 9.43 cents/kWh in 2005 because the costs of fuels for electricity generation have risen and retail electricity price caps have recently been loosened in some states, particularly in New England and the South Atlantic region, as a result of restructured electricity markets, the agency said.

Electric power sector consumption of coal is projected to grow by a modest 0.3% to 1,992.5 billion kWh this year, and increase by another 2% to 2,029.3 billion kWh in 2007, according to the EIA. And the price of coal to the electric power sector is expected to rise throughout the forecast period, although at a slower rate than in 2005 and the first half of this year, it noted.

Coal prices are likely to climb to $1.67/MMBtu in 2007 from $1.54/MMBtu in 2005, the EIA said. This compares to $1.35/MMBtu two years ago.

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