Continued high natural gas inventory levels, enhanced production capabilities and slow consumption growth are expected to keep natural gas prices from rising dramatically in the coming months, the Energy Information Administration (EIA) said in its Short-Term Energy Outlook for January.
On Jan. 1 working natural gas in storage was 3,123 Bcf, 316 Bcf above the previous five-year average and 286 Bcf above the level during the corresponding week last year. But the bitter cold throughout much of the country has resulted in significant drawdowns from storage during December, the EIA reported in the outlook, which was released last Tuesday.
Colder-than-normal temperatures in December contributed to an estimated storage withdrawal of 665 Bcf, 32% above the previous five-year average December drawdown. The weekly withdrawal of 207 Bcf during the week ending Dec. 11, 2009 was the largest weekly December drawdown since the week ending Dec. 29, 2000, when 208 Bcf was withdrawn from storage, the EIA said.
But "despite the large December draw and a projected first quarter 2010 inventory withdrawal [of] about 6% greater than the previous five-year average, the expected end-of-March 2010 storage level of 1,734 Bcf [or 1.734 Tcf] will be about 16% (237 Bcf) greater than the five-year average for that period," the agency said.
Barclays Capital analysts believe storage could be 1.6 Tcf at the end of March if there is a continuation of cold weather. However, it could finish at 1.94 Tcf if the weather is normal, they said (see NGI, Jan. 11).
The EIA sees total annual natural gas consumption, which fell by 1.5% last year, remaining "relatively unchanged" in the new year. It projects gas demand of 62.44 Bcf/d this year, compared to 62.45 Bcf/d in 2009. "Higher natural gas prices in 2010 are expected to cause a 2.8% decline in natural gas consumption in the electric power sector in 2010, which will offset growth in the residential, commercial and industrial sectors. Forecast total natural gas consumption increases by 0.4% in 2011, led by a 2.5% increase in consumption in the industrial sector," the EIA said.
The agency estimated that total marketed gas production rose by 3.7% to 60.22 Bcf/d last year, despite a 59% decline in the working natural gas rig count from September 2008 to July 2009. It noted that the number of working gas rigs has since turned around from the July 2009 low of 665, increasing to 759 at year-end 2009.
"While production growth in 2009 was supported by the enhanced productivity of new wells being drilled, steep declines from initial production at these newly drilled wells and the lagged effect of reducing drilling activity are expected to contribute to a 3% decline [to 58.41 Bcf/d] in 2010 production. EIA expects marketed production to increase by 1.3% in 2011 with growth in production from Lower 48 non-Gulf of Mexico (GOM) fields offsetting a decline in GOM production," the EIA said.
"EIA expects the annual average natural gas Henry Hub spot price for 2010 to be $5.36/Mcf , a $1.30/Mcf increase over the 2009 average of $4.06. The price will increase in 2011, averaging $6.12/Mcf for the year."
As for imports, the agency said U.S. pipeline imports, mostly from Canada, fell to 9.05 Bcf/d in 2009 from 9.92 Bcf/d in 2008, "as Canadian drilling activity and production fell because of lower prices." The EIA expects this trend to continue, with pipeline imports expected to plunge to 7.94 Bcf/d in 2011.
Meanwhile, the agency forecast that recent additions to global liquefied natural gas (LNG) supply in Russia, Yemen, Qatar and Indonesia will cause U.S. LNG imports to rise to 1.76 Bcf/d from 1.27 Bcf/d in 2009. It noted that it expects U.S. LNG imports to grow slightly in 2011.
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