Natural gas inventories were up last year on warm winter temperatures and a modest increase in domestic marketed production, which lead to a decline in the average wellhead gas price, according to the Energy Information Administration's (EIA) "Natural Gas Annual 2006," which was released last week.

The average wellhead price for gas declined from a high of $7.33/Mcf in 2005 to $6.40/Mcf in 2006. Despite the decline, the 2006 price remains 15.9% above 2004 levels, EIA noted.

"Unlike the 2005 Atlantic hurricanes that reduced annual natural gas production in the Gulf of Mexico (GOM) by 20.7%, in 2006 the United States experienced minimal storm activity, which eased production worries for the region," EIA said. "Despite continuous recovery operations in the GOM since the 2005 hurricane season, average marketed production in this region decreased an additional 7.9% in 2006. However, overall U.S. marketed production increased 2.4% last year, largely boosted by a 4.9% increase in Texas."

Production increased 2.4% in 2006 to 19.4 Tcf on the strength of wellhead prices in 2005. The increase followed two consecutive years of production declines. Colorado, Louisiana, Texas and Wyoming accounted for 6%, 5%, 5% and 11% of increases in marketed production, respectively. These helped offset declines in the GOM.

However, production still remains 592 Bcf below 2003 levels, EIA noted. The number of gas and gas condensate wells rose to a record of 448,641 in 2006, a 5% increase over the previous record set in 2005.

Total gas imports fell 3.6% to 4.2 Tcf in 2006, while net imports fell 4.2% to 3.5 Tcf. Liquefied natural gas (LNG) imports dropped for the second year in a row from 631 Bcf in 2005 to 585 Bcf in 2006, representing a 7.6% decrease. "The reduction in imports was primarily due to a 110 Bcf decline in Canadian imports and a 50 Bcf decline in LNG imports from Trinidad and Tobago," EIA said. "Again in 2006, Trinidad and Tobago was the leading supplier of LNG, accounting for 389 Bcf. Net LNG imports accounted for 15.1% of total net imports for the year, down from 15.7% in 2005."

Throughout last year, working gas storage levels remained above the previous five-year average, EIA said. the total number of active storage fields in 2006 grew by three, ending the year at 397. Total underground storage increased to 8,330 Bcf, up less than 1% from 8,268 Bcf in 2005.

Interstate gas movements declined last year. The total for 2006 was 61.7 Tcf, a 2.2% decline from 63.1 Tcf in 2005. GOM shipments to the mainland decreased by 8.9% to 2,800 Bcf. However, shipments from the Rocky Mountain states increased again in 2006, led by Wyoming and Colorado, with transfers of 2,175 and 2,053 Bcf, respectively. New Mexico's shipments of gas out of state declined slightly to 1,954 Bcf.

Gas transfers out of the Rockies are set to increase substantially when the Rockies Express Pipeline (REX) comes on line, which could be earlier than expected, Ultra Petroleum Corp. CEO Michael Watford told analysts Wednesday. Ultra will be one of the anchor shippers on REX. "REX is expected to be in service on Jan. 1, 2008, with a probable likelihood of interim service starting in December 2007, according to Kinder Morgan, the REX operator," Watford said (see related story).

Gas consumption declined for the second year in a row to 21.7 Tcf, down 1.6% from last year, EIA said. "Residential and commercial consumption was reduced to 4,368 Bcf and 2,835 Bcf in 2006, a 9.5% and 5.5% decrease, respectively, as residential and commercial end-user prices rose for the fourth year in a row," EIA said. "Demand in the industrial sector fell 1.6% to 6,495 Bcf. Consumption grew to 6,222 Bcf, up 6% from a year ago, in the electric power sector."

The industrial sector accounted for 33% of total consumer deliveries of gas, while the electric power sector accounted for 31%; the residential sector, 22%; and the commercial sector, 14%.

The average citygate price fell slightly, from $8.67/Mcf in 2005 to $8.61/Mcf in 2006 with mixed results among the end-use sectors, EIA found. Average commercial and residential prices increased 3.5% to $11.99/Mcf and 7.1% to $13.75/Mcf respectively. "Although the average annual residential and commercial prices remained higher than in 2005, they decreased sharply from their previous record monthly highs set during the second half of 2005," EIA said.

"In contrast, annual prices in the other sectors adjusted more quickly in 2006." Prices in the industrial sector fell 8.2% to $7.86/Mcf. The average price of gas used for vehicle fuel fell 3.4% below levels of a year ago, ending at $8.78/Mcf. Prices charged to the electric power sector fell $1.37/Mcf from 2005, or 16.2%, to $7.11/Mcf.

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