Working natural gas in storage reached a record 3.51 Tcf in late October and the Henry Hub spot price, expected to average about $7.30/Mcf in 2007, is likely to rise to $8.01 in 2008, the Energy Information Administration (EIA) said.
In its Short Term Energy Outlook for November, EIA said the record high storage level and limited fuel switching capability have mitigated the impact on natural gas prices of recent price increases in petroleum markets (according to EIA, global oil markets will likely remain stretched, with monthly average prices for West Texas Intermediate crude oil expected to average $87/bbl for the rest of the year and remain well above $70/bbl for some time).
EIA said the Henry Hub spot price averaged $6.94/Mcf in October and projected prices to reach a winter peak monthly average of about $8.65/Mcf in January.
The government agency said it expects total natural gas consumption for 2007 to rise by 4.5% primarily because of increases in the residential, commercial and electric power sectors that occurred in the early part of the year, with consumption to grow another 0.9% next year. Most of that growth will come in the residential sector, where consumption is expected to increase by 2.0% in 2008, with 0.9% growth in the commercial sector, 1.3% growth in the electric power sector and no change projected for the industrial sector, which EIA said will have a 0.7% decline this year.
Total U.S. natural gas production is expected to rise by 1.4% in 2007 and by 1.3% in 2008. Rising natural gas production in the Lower 48 onshore region this year has been partially offset by lower production in the Gulf of Mexico, EIA said. Efforts to develop unconventional reserves are expected to increase Lower 48 onshore production by 2.2% this year and by 0.3% in 2008. While EIA expects production in the Gulf to decline by 2.8% in 2007, it said the development of deepwater supply sources should lead to production growth of 7.4% in 2008.
The EIA said imports of liquefied natural gas (LNG) have slowed substantially since earlier this year, reflecting changes in world LNG supply and demand.
"Several LNG producers are experiencing difficulties maintaining full production levels at the same time as strong demand in other parts of the world has resulted in higher prices, which divert cargoes away from the United States," the EIA said. Citing the shutdown of a Tokyo Electric Power Co. nuclear power plant following a July 16 earthquake, EIA said Japan, the world's largest importer of LNG, has been using more LNG than ever for electricity generation. While the United States is reducing LNG imports, Japan is expected to increase LNG imports by 39% this year and by 24% in 2008.
EIA said total electricity consumption this year will average 10.7 billion kWh/d, 2.1% above consumption in 2006. U.S. residential electricity prices are expected to average 10.6 cents/kWh in 2007. Coal consumption by the electric power sector -- which accounts for more than 92% of total U.S. coal consumption -- is expected to grow by 1.6% in 2007 and remain relatively flat in 2008.
The report was issued one day after the EIA released its 2006 Annual Report of U.S. Crude Oil, Natural Gas and Natural Gas Liquids Reserves, which indicated that U.S. proved reserves of natural gas were higher last year than at any time since 1976 (see related story).
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