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EIA Trims LNG Outlook, Cuts Price Forecast

With the U.S. losing out to foreign countries in the bidding war for liquefied natural gas (LNG), the level of LNG imports this year and next is expected to be well below the 2007 high of 771 Bcf, the Energy Information Administration (EIA) said in its Short-Term Energy Outlook for August. The agency also significantly cut its spot price price projections for this year and 2009, citing increased domestic production and the drop in crude oil prices as factors.

"Imports of [LNG] remain low as demand for natural gas in Asia-Pacific and Europe continues to attract cargoes with higher relative prices. On the supply side, repairs, maintenance and delays in new liquefaction projects have limited the availability of LNG so far this year. While a significant increase in global liquefaction capacity is projected in 2009, continuing natural gas demand growth and higher relative prices in Europe and Asia are expected to attract much of the new supply," the agency said in its monthly energy outlook, which was released Tuesday.

"As reported on the IntercontinentalExchange, the recent price of natural gas for January [2009] delivery in the United Kingdom is about double the current January price for natural gas on the New York Mercantile Exchange." The EIA estimated that LNG imports will total 390 Bcf this year and will rise to 480 Bcf in 2009, but still will be about 300 Bcf below the level seen in 2007.

The Henry Hub spot price averaged $11.45/Mcf in July, $1.62/Mcf below the average spot price in June, the agency said. It noted that the decline marked the end of consecutive increases in the monthly average price that began in October 2007. The EIA sees spot prices for natural gas remaining below $10/Mcf until December, when space heating demand rises.

"While warmer-than-normal weather in July increased natural gas demand in the electric power sector, the decline in crude oil prices and continuing supply growth contributed to the decline in natural gas prices over the past month. Looking ahead, strong domestic production is expected to [offset] the impact of lower LNG and Canadian imports on natural gas prices," the EIA said.

The agency cut its projection for the average annual Henry Hub spot price to $10.04/Mcf this year from its prior-month estimate of $11.86/Mcf, as well as scaled back the projected average spot price for 2009 to $9.01/Mcf from its previous estimate of $11.62/Mcf.

On the supply side, the agency projects U.S. marketed gas production to rise by 8% to 59.61 Bcf/d this year and by 3.7% to 61.83 Bcf/d in 2009. "Robust growth from unconventional production basins in the Lower 48 onshore region is expected to continue, while production is projected [to] remain unchanged in the federal Gulf of Mexico in 2008 [7.59 Bcf/d]. Marketed natural gas production from the federal Gulf of Mexico is projected to increase by 3.5% [to 7.86 Bcf/d] in 2009 while sustained drilling activity is expected to lead to production growth next year of 3.9% in the Lower 48 onshore region [to 52.81 Bcf/d from 50.86 Bcf/d this year]," the EIA said. Including LNG and pipeline imports, total supply this year is estimated at 65.12 Bcf/d.

Total natural gas consumption also will grow this year and next but at a slower rate than production -- 3% to 65.09 Bcf/d this year and by 1.7% to 66.15 Bcf/d in 2009, according to the agency. "Consumption increases are expected in every sector in 2008. The strongest growth during the forecast period is expected to come from the electric power section (3.4% in 2008 and 3.1% in 2009) as natural gas-fired generation continues to take on a larger share of electric power supply. Growth in natural gas consumption in the industrial sector has continued, although higher natural gas prices and the weakening economy add uncertainty to the current outlook."

As for inventories, working gas in storage on Aug. 1 was 2,517 Bcf, 6 Bcf below the five-year average and 353 Bcf below the level during the corresponding week last year.

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