Despite ample storage, natural gas prices — influenced by crude oil — are expected to average $5.80/Mcf at the Henry Hub this year and $6.60/Mcf in 2006, the Energy Information Administration (EIA) said in its latest monthly Short-Term Energy Outlook released Tuesday. The projection was ratcheted up from the $5.45-$5.75/Mcf annual average for the 2005 to 2006 period that EIA predicted last month.

EIA noted that although spot prices declined in January and February due to mild weather, averaging $6.33/Mcf for the two months, compared to $6.78/Mcf in December, the prices still are high. At 1,570 Bcf at the end of February, working gas in storage is 36% higher than one year ago and 30% higher than the five-year average.

“With the heating season now almost over and with ample storage, natural gas prices should ease over the next several months,” EIA said. But it also noted the overall tight market conditions and the expectation that crude oil prices would “remain well above $40 a barrel through 2006.”

Natural gas demand is projected to increase by 2.2% in 2005, down from the 3% projected in last month’s EIA Outlook (see NGI, Feb. 14). “This is due to the fact that overall heating degree-days have thus far been lower than normal in the first quarter of 2005 and that natural gas prices remain high.”

The agency estimated domestic natural gas production in 2005 is now expected to increase by 0.5% from the 2004 level rather than by 1.6% as it had previously projected, despite high gas-directed drilling rates.

In 2006, natural gas demand is projected to rise by 3.2% due largely to weather-related factors and continued strength in gas-intensive industrial production, EIA said.

Meanwhile two consulting firms recently projected prices dropping into the $4 range at some point this year. Energy and Environmental Analysis (EEA) said this would lower the Henry Hub average to $5.93/MMBtu in 2005. EEA expects a 1.1% increase in Lower-48 gas production. Energy Ventures Analysis expects Henry Hub prices to average $5.72 this year, $5.55 next year and $4.36 in 2007 (see NGI, March 7).

Heating demand was below expectations for February as heating degree-days were below expected levels across most of the key heating regions of the United States. National population-weighted heating degree-days for February are now estimated to have been about 14% below the level projected in last month’s Outlook, causing actual heating fuel consumption to fall below the previously projected level .

Electricity demand is expected to increase by 3.1% in 2005 and by an additional 2.3% in 2006 due to continuing economic growth, following estimated growth of 1.5% in 2004. Third quarter demand growth (year-over-year) is expected to be particularly strong, as cooling demand is likely to be much higher than in Q3 2004. in the electric power sector is expected to increase 3.4% in 2005 and another 3% in 2006. Power sector demand for coal continues to increase as oil and gas prices remain high. U.S. coal production is expected to grow by 3.1% in 2005 and by an additional 2.9% in 2006. Hydroelectric power availability, which fell somewhat in 2004, is expected to rebound in 2005 by as much as 13% nationally, provided normal precipitation patterns prevail.

©Copyright 2005Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.