Consumers are expected to consume more natural gas at a higher price to heat their homes this winter, resulting in a 10% hike in household gas bills over last winter, the Energy Information Administration (EIA) said last Tuesday in its Short-Term Outlook for October and Winter Fuels Outlook. The American Gas Association (AGA) separately reported that the level of natural gas supply going into the winter is good.
The EIA estimated that the average 2007-2008 winter price per Mcf is likely to rise 78 cents above the 2006-2007 winter levels to $13.14/Mcf, which equates to a 6.3% jump in the average price of gas.
On average, households heated primarily with natural gas are likely to spend an average of $78 more for fuel this winter, the Department of Energy (DOE) agency said in the combined energy outlooks. It projects that the average household will use 67.8 Mcf of natural gas this winter and will pay a total of $891 compared with $813 in the 2006-2007 heating season. Gas consumers in the Northeast and Midwest will see the biggest winter bills -- $1,212 and $1,045, respectively. Customers using all other types of heating fuels will pay more this winter as well: heating oil ($319 more), propane ($221 more) and electricity ($32 more).
The higher natural gas bills reflect the combined effects of a 6% increase in prices and 3% hike in consumption due to colder weather that is anticipated for this winter heating season, which begins Nov. 1. According to the National Oceanic Atmospheric Administration's most recent projection, the upcoming winter in the Lower 48 states is forecast to be 4% colder compared with last winter, but 2% warmer than the 30-year average. The EIA estimates that 58% of U.S. households will use natural gas to heat their homes this winter.
Henry Hub spot prices averaged $6.26/Mcf in September, which marked the fourth consecutive decline in the monthly average spot price due to the lack of significant hurricane activity in the Gulf of Mexico and historically high inventories, the agency said. It projects that spot prices at the Henry Hub will rise to a winter peak of $8.65/Mcf in January 2008. Spot prices are likely to average $7.21/Mcf for the current year and $7.86/Mcf in 2008.
Working gas inventories by the start of the heating season are projected to reach 3,444 Bcf, slightly below the all-time high for natural gas storage inventories recorded at the end of November 1990, according to the EIA.
Heating degree days in the fourth quarter are expected to rise by 10% over the corresponding period in 2006, contributing to expectations of 9.5% and 6.9% growth in residential and commercial sector natural gas consumption, respectively, over last year, the EIA said. It estimates that total gas consumption will rise by 4.6% to 62.25 Bcf/d for the year from 59.50 Bcf/d in 2006 because of increases in the residential, commercial and electric power sectors, particularly in the first half of the year.
The continuation of near-normal weather is expected to slow year-over-year consumption growth by 0.4% to 62.51 Bcf/d in 2008, the agency noted. Residential consumption growth would likely rise by 1.5%, but only small changes are anticipated in the commercial and electric power sectors next year. Industrial gas demand is projected to drop by 0.9% this year but increase by 0.4% in 2008.
On the supply side, the EIA projects that U.S. marketed natural gas production will rise by 1.3% to 53.78 Bcf/d this year from 53.10 Bcf/d in 2006, and will be followed by a slight increase of 0.9% in 2008. In the Gulf of Mexico, marketed production is expected to decline by 2.6% to 7.59 Bcf/d from 7.79 Bcf/d in 2006, and then increase by 5.4% in 2008 as a result of developing deepwater supply infrastructure, the EIA said. In the Lower 48 region, it said marketed production is anticipated to rise by 1.9% to 44.94 Bcf/d this year from 44.09 Bcf/d in 2006, offsetting production declines in the Gulf, and increase by 0.2% in 2008.
The EIA estimates that liquefied natural gas (LNG) imports will climb by a total of 260 Bcf, or by 44.5%, this year and by about 170 Bcf in 2008. It noted that LNG currently is being imported in the United States at a rate of 2.31 Bcf/d, up from 1.60 Bcf/d in 2006, and projects imports will average 2.76 Bcf/d in 2008. "High natural gas prices in the United States created a surge in shipments to the United States during the first half of 2007. [But] LNG imports have slowed in the last two months as natural gas demand in Japan for electricity generation has increased since the shutdown of the Kashiwazaki-Karlwa nuclear power plant in July."
The level of natural gas supply looks "very good" going into the 2007-2008 heating season, the AGA reported last Monday. AGA officials also said the key indicators of natural gas prices for the upcoming winter don't look much different than last year's, making weather the wild card in determining the size of household gas bills this winter.
"This year it's a return to 'business as usual' for natural gas utilities and their customers," said Chris McGill, managing director of policy analysis, at an AGA press briefing on its winter heating outlook in Washington, DC. "The business of a natural gas utility is to provide reliable supplies at an affordable price to its customers throughout the winter and all indications are that utilities are going to conduct that business very well this year."
McGill said gas customers should benefit from the incremental increases in supply made possible by the planned in-service of two liquefied natural gas (LNG) terminals in 2008, the start-up of the western leg of the Rockies Express Pipeline early next year and the operation of the Independence Hub in the Gulf of Mexico.
"Are we challenged for this winter? Not from the standpoint of reliably supplying customers' demand," he said. "But we need to keep in mind that costs are higher today than when compared to history and that adequate supply for winters to come remain an issue."
As for electric demand, the average U.S. household is expected to consume 8,283 kilowatt hours (kWh) this winter compared to 8,158 kWh in the 2006-2007 heating season, and pay a total of $855 compared to $823 last winter. Northeast and Midwest power customers are likely to see the biggest winter bills, at $1,442 and $963, respectively, the EIA said. The agency estimates that 30% of U.S. households will rely on electricity as their primary heating fuel this heating season.
It expects total electricity demand for the current year to average 10.71 billion kWh/d, up from 10.47 billion kWh/d in 2006, and to increase slightly to 10.79 billion kWh/d in 2008. Electricity supply is projected to average 11.45 billion kWh/d for this year compared to 11.15 billion kWh/d in 2006, with a modest hike to 11.48 billion kWh/d anticipated for 2008.
The growth in electricity demand this year is primarily due to a surge in power consumption in the first quarter, while the slower anticipated increase in 2008 will be due mostly to an assumed return to near-normal summer temperatures and slightly slower growth in economic activity, according to the EIA.
U.S. residential electric prices are likely to grow by 2.2% to 10.6 cents/kWh this year and by 2.3% in 2008, much lower than the growth rates experienced during 2006, the EIA said. Most of the increase is due to hikes in fuel costs incurred by electric power generators, it noted. Industrial electricity prices are expected to increase by 4.8% to 6.4 cents/kWh this year and by 1.7% in 2008.
The anticipated increase in power demand will raise coal consumption by the electric power sector by 2% to 1,046.8 million short tons this year, the EIA said. Coal demand by the electric sector is expected to remain relatively flat at 1,047.8 million short tons in 2008.
On the supply side, coal production, which increased by 2.8% in 2006, is projected to fall by 2.7% to 1,131.5 million short tons this year from 1,162.7 million short tons in 2006. And production is likely to remain relatively flat (0.2% growth) in 2008, the EIA said.
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