Supporting data released by independent energy analysts in recent weeks, the Energy Information Administration (EIA) blamed the inactive hurricane season, high storage inventories and mild summer weather for the sequential decline in natural gas prices in May, June and July.
In its Short-Term Energy Outlook for August issued last week, EIA noted that current spot prices at the Henry Hub reflect a lack of Gulf of Mexico (GOM) storms, storage inventories that recently surpassed the corresponding level of a year ago and mild summer weather in the West-South-Central region, which represents about one-third of the electric power sector's total natural gas demand. The EIA report on gas echoed similar data compiled by several other energy analysts (see related story).
Strong gas storage injections in July pushed current stocks over year-ago levels for the first time since EIA's storage report for Jan. 27, the report noted. Current inventories are now 410 Bcf above the five-year average from 2002 to 2006, and 68 Bcf above the level from the corresponding week last year.
However, hurricane season runs through Nov. 30, and current price projections "remain vulnerable to potential storm-induced supply disruptions during that period." On that assumption, EIA pegged Henry Hub spot prices to average $6.66/Mcf in 3Q2007 and $7.96 in 4Q2007. For the year, the Henry Hub spot price was averaged at $7.45/Mcf, rising to $8.06 in 2008.
The EIA's report confirmed recent data by energy analysts and some U.S.-based producers that onshore natural gas production growth is offsetting declines in the GOM. Through the first half of the year, GOM output fell 2.3% and Lower 48 gas volumes rose 3.1% compared with the same period of 2006.
"On an annual basis, Gulf production is expected to decline by 4.2% in 2007 while Lower 48 onshore production is expected to rise by 1.6%," EIA said. Total hurricane-induced shut-ins still account for an outage of 81 Bcf in the GOM, which is down from the 85 Bcf reported in July. The EIA expects total U.S. dry gas production to rise 0.8% this year and 1.5 % in 2008 -- with all the gains coming from the onshore.
Imports of liquefied natural gas (LNG) also are setting a record pace, according to EIA. In the first half of the year LNG imports reached 460 Bcf, about 53% more than the same period a year ago. LNG imports for the rest of 2007 are expected to decline as more cargoes are directed to more lucrative European and Asian markets. However, for the year, total LNG imports still are expected to reach 850 Bcf -- a record high.
On an annual basis, the EIA estimated that total gas consumption will rise by 4% this year and 1.3% percent in 2008. In annual terms, EIA projected gas-fired power in the electric sector will jump 4.8% from 2006. Residential gas-fired power use is expected to grow 10.5% and in the commercial sector, gas is expected to be up 7.5% -- both rising on "the projected return to normal winter weather. In the industrial sector, gas-fired consumption is seen declining by 1.5%.
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