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EIA: Prices Up in May on Oil Strength, Consumption Growth

Spot gas prices at the Henry Hub were higher last month than in April due to high oil prices, low liquefied natural gas (LNG) imports, consumption growth and a year-over-year decline in working gas storage of 326 Bcf, the Energy Information Administration (EIA) said in its monthly Short-Term Energy Outlook, released last week.

The Henry Hub spot price averaged $11.65/Mcf in May, $1.16/Mcf more than the average spot price in April. On an annual basis, the Henry Hub spot price is expected to average a little more than $11/Mcf in 2008 and in 2009, an average increase of about $1.35/Mcf from last month's EIA forecast (see NGI, May 12). Conditions supporting spot prices are expected to continue, EIA said.

Gas consumption is expected to increase by 2.2% in 2008 and by 0.9% in 2009, according to the latest Outlook. Year-over-year increases in the residential, commercial and electric power sectors have been largely weather-driven. In 2009 residential and commercial consumption is expected to decline slightly while consumption for power generation is expected to increase by 2.5%.

Growth in the industrial sector, which increased by 4.8% in the first quarter of 2008 compared with the corresponding period last year, seems to be tied to export strength and some resurgence in gas-intensive industries, such as fertilizers, EIA said. In annual terms consumption in the industrial sector is expected to increase by 1.3% in 2008 and 0.4% in 2009.

U.S. marketed gas production is expected to increase by 6% in 2008 and by 1.5% in 2009, EIA said. This includes an estimated expected hurricane-induced outage of about 78 Bcf for the offshore region this year. High rig counts in the Lower 48 onshore region -- particularly in unconventional reserve basins -- are expected to lead to an increase in onshore production of 7.4% in 2008. Marketed gas production for 2009 from the Gulf of Mexico is projected to increase by 2.6% while the Lower 48 onshore region is expected to increase by 1.4%.

LNG imports remain substantially below last year's levels as supplies continue to flow to higher-priced markets of Asia-Pacific and Europe. Imports this year are expected to total about 530 Bcf, a decline of about 240 Bcf from 2007. In 2009 imports are expected to reach about 850 Bcf as new liquefaction capacity increases world supply, EIA said.

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