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EIA: U.S. Looking at Higher Gas Prices, More Demand and Less LNG

Weather, the weakening U.S. dollar, stronger demand and North America's inability to attract cargoes of liquefied natural gas (LNG) in a competitive world market are all expected to exert upward pressure on natural gas prices, according to this month's "Short-Term Energy Outlook" from the U.S. Energy Information Administration (EIA).

Gas consumption is expected to increase by 1.4% in 2008 and by 0.5% in 2009 with the residential and commercial sectors leading growth in 2008 because of a projected 5.4% increase in heating degree days (HDD) compared with 2007, according to EIA. In contrast, a projected 12.4% decline in cooling degree days from the warm summer of 2007 is expected to leave consumption in the power sector relatively unchanged. Finally, the declining real value of the U.S. dollar and some recovery in fertilizer market are expected to contribute to slight growth in industrial-sector consumption this year and next.

The Henry Hub spot price averaged $10.49/Mcf in April, 74 cents/Mcf above the average March spot price. Continuing cool weather (HDD were 6% more than normal in April), sagging imports of LNG, lower inventories and higher oil prices have all contributed to spot price strength, EIA said. Uncertainty over demand from the power sector during the summer and the possibility of hurricane-related supply disruptions later this year could impact spot prices in the coming months, EIA said. On an annual basis, the Henry Hub spot price is expected to average $9.69/Mcf in 2008 and $9.41/Mcf in 2009, increases of $1.10 and $1.09/Mcf, respectively, from last month's "Outlook."

Marketed gas production is expected to increase by 4.6% in 2008, then decline by 1.1% in 2009. Despite ongoing repairs at the Independence Hub (see NGI, May 5), production from the Gulf of Mexico is expected to increase by 4.2% in 2008. Sustained high rig counts in the Lower 48 onshore are expected to yield an increase in onshore production of 4.9% this year.

Through the first four months of 2008 LNG imports were about 115 Bcf, considerably less than the import total of 283 Bcf at this time last year. Higher prices available to LNG suppliers for deliveries to both the Asia-Pacific region and Europe are shifting cargoes away from the United States.

Although EIA still expects significant additions to world LNG productive capacity through 2009, recent delays in bringing new liquefaction projects on-line and current high demand in other parts of the world will continue to constrain LNG shipments to the United States, the agency said. In 2007 LNG imports totaled 771 Bcf. The 2008 LNG import forecast has been revised downward to 580 Bcf from the 680 Bcf forecasted by the EIA last month.

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