The United States is headed for a natural gas shortage that could last for the next five to seven years and substantially change the face of the energy industry, according to a new study by Andrew D. Weissman, publisher of Washington DC-based EnergyBusinessWatch (EBW).

Weissman cites the recent heavy storage withdrawals and escalation in the January futures price as evidence of a sea change in the gas industry. The EBW study, to be released next week, concludes that “if recent proprietary forecasts of a colder-than-normal next 30 days prove to be correct, the amount of natural gas in storage could easily drop below 800 Bcf by the end of the winter heating season, with natural gas prices potentially soaring to a level between $6 and $8/MMBtu in as little as three weeks.”

The low storage level and pressure to refill next year will conflict with the summertime electric power demand, Weissman predicts, and storage could wind up the fill season at least 35-40% below historical norms. That scenario argues for higher prices all around.

“By April or May of next year, electricity prices could begin to increase rapidly in every region of the country in which natural gas-fired generation is the marginal source of supply — with peak prices during the summer months rising 50% or more compared to last summer even in regions in which there is substantial excess generating capacity,” Weissman says.

And natural gas prices would remain high — well above $6/MMBtu — next winter.

Weissman maintains the high prices are here to stay as “the earliest stage of a transition period that may last for much of the rest of this decade in which the U.S. must shift to new, less conventional sources of supply to meet the rapidly growing demand for natural gas as a fuel to generate electricity.” The higher prices will bolster some sagging energy companies, push others further into the hole, and threaten the U.S. economic recovery.

The EnergyBusinessWatch report, to be released next week, points to the collision between declining conventional production in the U.S. and Canada and the rising use of natural gas to fuel the growing electric market.

The report predicts “supplies of natural gas available to the U.S. market are virtually certain to fall at least 1.5 Tcf below the Energy Information Administration’s most recent 2003 consumption forecast of 23.11 Tcf, forcing sharp price increases to drive out-of-the market at least 5-7% of expected ’03 demand.”

The remedy will not occur overnight and it will be expensive. It will take time and large investments to build the ships and LNG terminals necessary for large increases in imported LNG; the long-line pipelines from the MacKenzie Delta and Alaska, and to expand ultra-deepwater drilling in the Gulf.

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