Base case Henry Hub gas prices are expected to average only $5.83 for the gas storage injection season (April-October) and $6.50/MMBtu this year, according to the latest Monthly Gas Update from Arlington, VA-based consulting firm Energy and Environmental Analysis (EEA). The forecast excludes the potential impact of severe weather or significant hurricane activity, but factors in high gas storage levels, rising liquefied natural gas (LNG) imports and a return to normal summer temperatures.
Storage levels are the major contributor to the bearish forecast, which falls significantly short of the $8.07/MMBtu 2006 Henry Hub price forecast in the Energy Information Administration's (EIA) latest Short-Term Energy Outlook (see related story). Working gas levels in storage currently are 63% above the five-year average for this time of year.
"High storage inventory levels should keep a lid on summer prices," EEA said, projecting that injection season Henry Hub prices would range between $4.50 and $7.50 depending on summer weather. Given normal weather, EEA projects that New York citygate prices will average $6.48, Chicago citygate prices will average $5.68 and Southern California prices will average $5.35 this injection season.
EEA predicts that summer gas demand from power generation will fall 1.5 Bcf/d. "June-September 2006 gas consumption by the power sector is projected to average 17.3 Bcf/d, down from 18.8 Bcf/d in the summer of 2005," which experienced temperatures that were 18% hotter than normal.
Meanwhile, LNG imports are expected to rise to 1.9 Bcf/d this year from 1.7 Bcf/d last year because of the five new liquefaction trains that were brought online in the Atlantic basin over the last 12 months. EIA projects that LNG imports will be even higher, at 2.1 Bcf/d in 2006.
U.S. gas production is expected to rise to pre-Hurricane Katrina levels (51.6 Bcf/d) by the end of the year.
While EEA sees a bearish scenario developing this year, the forecast for 2007 shows a return to a tighter gas supply-demand balance and Henry Hub gas prices averaging about $7.50.
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