The Energy Information Administration (EIA), in its Short-Term Energy Outlook for May, again raised its projection for the average spot price of natural gas this year — by 7% to an average of $5.80/Mcf from the $5.40/Mcf that it had projected last month.

“Barring cooler-than-normal weather this summer, the likelihood appears small that spot prices will fall significantly below $5.80 per Mcf for the rest of 2004,” the Department of Energy (DOE) agency said in its monthly report, which was released last Tuesday. It anticipates average spot prices will rise by about 30 cents/Mcf in 2005. The EIA said its price projections depend on modest growth in domestic natural gas production in both years.

Domestic gas production is estimated to have grown by only about 0.5% last year, according to the EIA. It expects U.S. production to increase by approximately 1% this year as new natural gas well completions, which totaled about 20,000 in 2003, remain strong at nearly 24,000 wells per year over the next two years.

The EIA revised downward its projection for gas demand growth this year. It now estimates demand will rise by about 1.3% to 22.21 Tcf in 2004, compared to a 2.4% annual increase that it anticipated in April.

Gas demand in 2005 is likely to increase only minimally (0.3%) to 22.28 Tcf as “some of the current pressure on natural gas in the electric power sector eases along with spot coal and oil prices,” the EIA noted.

As for gas stocks, it reported that net April injections were 199 Bcf, well above the previous five-year average of 139 Bcf. Gas inventories at the end of April were about 37% ahead of last year at this time and approximately 2% below the five-year average.

“We expect natural gas inventories to track near normal levels through the forecast as long as weather conditions remain close to normal,” the EIA said.

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