The Energy Information Administration (EIA) in its November forecast has revised downward its projection on rising winter heating costs. Bills for households fueled by natural gas are now expected to rise 41% ($306 more per household) rather than the 48% hike ($350 more per household) that EIA predicted in October.
"For the natural gas market, the adjustment reflects our reassessment of the mark-up between wellhead and end-use markets in our new regional natural gas model," the statistical arm of the Department of Energy (DOE) said in its Short-Term Energy Outlook for November, which was released last Tuesday.
Citing the continued shut-in of natural gas and oil production in the Gulf of Mexico, the EIA said the average Henry Hub price for the fourth quarter will hover around $13.48/Mcf. The Henry Hub natural gas spot price is expected to average $9.15/Mcf in 2005 and $9.00/Mcf in 2006. In October 2005, the Henry Hub natural gas spot price averaged $13.82/Mcf and the monthly average spot price is likely to remain above $10/Mcf until peak winter demand is over, the EIA said.
As for repairs to energy infrastructure in the Gulf region, "it now appears unlikely that anything close to complete recovery will occur before the end of the second quarter of 2006," the EIA said."This extends the recovery period by about three months beyond what was assumed in the previous outlook."
Shut-in Gulf of Mexico production is projected to gradually decline through March 2006, when offline Gulf crude output falls to 353,000 barrels per day (22.6% of its pre-hurricane production level) and shut-in natural gas output drops to 2.1 Bcf/d (20.6% of its pre-hurricane level), according to the EIA. Also, onshore oil and gas production in Louisiana, which was less than 50% at the end of October, is expected to be fully restored by the end of March, the agency said.
In response to higher prices, total natural gas demand is projected to drop by 0.8% to 22.22 Tcf this year compared with 2004 levels, then recover by 2.8% to 22.84 Tcf in 2006, assuming a return to normal weather and a recovery in consumption by the industrial sector. The EIA expects industrial gas demand to decline by more than 8% in 2005 due to much higher prices for natural gas as a fuel or feedstock. Recovery of industrial demand in 2006 "rests in part on the assumed reactivation of damaged industrial plants in the Gulf of Mexico region."
Domestic dry natural gas production this year is likely to decline by 4.2% due in large part to the major disruptions to infrastructure in the Gulf Mexico from the twin hurricanes, then increase by 4.7% in 2006, the EIA said. Total liquefied natural gas imports for 2005 will remain flat at about 650 Bcf, but are projected to average slightly above 1,000 Bcf in 2006.
Working gas in storage stood at an estimated 3.229 Tcf for the week ended Nov. 4, 93 Bcf less than a year ago but 123 Bcf above the five-year average. Storage levels are expected to be 7.9% lower at the end of 2005 than they were at the end of 2004, while gas storage levels year-end 2006 are likely to be about even with 2005, the agency noted.
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