The Natural Gas Supply Association (NGSA) expects a relatively stable market this winter, thanks to forecasts of slightly warmer-than-normal temperatures, a flat economy and moderate growth in both natural gas demand and supply.
In its annual Winter Outlook, NGSA predicts that the economy will continue its low-level growth and says wholesale customers can expect flat market pressure on natural gas prices this heating season relative to last winter. While the Washington, DC-based association does not predict wholesale or retail natural gas prices, it noted that some independent analysts have said Henry Hub spot prices, recently averaging around $6.00/MMBtu, could average in the $7.00-9.00/MMBtu range this heating season.
As always, the wildcard this winter will be the weather. According to NGSA, weather will likely put upward pressure on the natural gas market this year. The association based its prediction on the National Oceanographic and Atmospheric Administration's (NOAA) forecast of a slightly warmer than normal winter and recent forecasts of moderate level of activity in the remaining weeks of the hurricane season. In August, NOAA trimmed the number of hurricanes it said would form this year, while still predicting an above-normal number of storms (see NGI, Aug. 13). WSI Corp. weather forecasters are among those who have said they expect an active finish to the 2007 Atlantic hurricane season; WSI also recently predicted warmer-than-normal temperatures during the last three months of 2007 (see related story).
Natural gas demand for this winter is likely to increase 278 Bcf or 1.8%, according to Energy Ventures Analysis Inc. (EVA). Compared to last winter's slightly warmer-than-normal weather, the increase will result in natural gas demand for both residential and commercial consumers of nearly 168 Bcf or 3.2% above that for last winter. EVA has projected 3,530 heating degree days (HDD) this winter, compared to 3,354 HDD last winter. Offsetting some of the weather-related increase in demand will be consumer conservation and the lack of recovery in the industrial sector, according to NGSA, which anticipates that the modest increase in demand will result in flat winter-to-winter price pressure.
U.S. natural gas rig activity in August averaged 1,473 compared with 1,342 rigs this time last year, an increase of 10%, according to an NGSA-commissioned analysis by ICF International. There are continued high rig counts in both tight gas and shale gas plays, along with the start-up of Gulf of Mexico deepwater fields. NGSA said it expects increased rig activity to lead to a 5% increase in annual gas well completions, to a record 30,500 gas wells from 29,000 wells completed in 2006. During the first half of 2007, monthly gas well completions were at 2,700 per month, the highest level in recent years.
"U.S. rig counts and natural gas completions continue at a high pace," said NGSA Chairman Chris Conway, who is also marketing chief for ConocoPhillips. "This is evidence of the huge investments being made by both the major and independent natural gas producers to sustain and increase U.S. natural gas production both onshore and offshore."
Based on supply fundamentals, NGSA anticipates flat pressure on the market due to a downward trend in imports being offset by the upward trend in domestic natural gas production. For example, production from the Fayetteville Shale in the Arkoma Basin of Arkansas is ramping up and should approach 300 MMcf/d by the end of the year, and Independence Hub in the eastern Gulf of Mexico started production this summer. Lower 48 natural gas production is projected to increase to 51.3 Bcf/d from 50.7 Bcf/d, a 1.2% increase compared to last year's heating season.
NGSA said it anticipates another record inventory level will put downward pressure on the wholesale market. With expected annual storage capacity additions of 104 Bcf and injections in the summer averaging 65 Bcf per week, NGSA expects storage to enter the winter heating season at 3,520 Bcf, compared to last year's all-time record of 3,445 Bcf. According to the Energy Information Administration (EIA), 74 Bcf was injected into underground storage for the week ended Sept. 21, matching the five-year average for the week (see related story). As of Sept. 21, working gas in storage stood at 3,206 Bcf, according to EIA estimates, 37 Bcf less than last year at this time and 238 Bcf above the five-year average of 2,968 Bcf.
Conway said NGSA continues to caution the nation and policymakers not to become complacent due to continued flat economic pressure on U.S. natural gas markets.
"Producers have shown their strong long-term commitment to the natural gas market through huge levels of investment, and federal lawmakers need to make the tough decisions to provide the country the comfort and convenience of natural gas that consumers have come to expect," Conway said.
The complete Winter Outlook is available on NGSA's website, www.ngsa.org.
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