Supplies of natural gas are expected to be bountiful this winter, with much of the gas coming from domestic sources (such as shales), which will lead to a relatively stable market this winter, according to two major winter forecasts released by the Natural Gas Supply Association (NGSA) and the American Gas Association (AGA) last week.
The two groups measured supply and demand for the upcoming winter months differently and their numbers are slightly different, but they came to the same conclusions -- that natural gas will be plentiful this winter, and it will be mostly from domestic sources (shales) rather than from liquefied natural gas (LNG) imports and Canadian pipeline imports. They also see a stable market ahead in the winter months. The NGSA, which represents producers, projected winter demand and supply on a Bcf/d basis, while the AGA -- which represents local distribution companies -- made projections on a peak month demand and supply basis.
Fueled by robust demand for natural gas in the industrial and power generation sectors, pressure on gas prices is likely to be flat in the upcoming 2010-2011 winter heating season, the NGSA said in its winter outlook.
The producer group projects that overall gas demand will increase 2.4% to 79.8 Bcf/d during the five-month winter heating season, which gets under way on Nov. 1, from 77.9 Bcf/d last winter. This is largely due to the anticipated year-over-year growth in industrial demand -- 20.3 Bcf/d this winter from 19.3 Bcf/d in the 2009-2010 heating season -- and electric demand -- 17.3 Bcf/d this winter from 16.2 Bcf/d a year ago, according to Arlington, VA-based Energy Ventures Analysis (EVA), which NGSA commissioned for the demand side of its outlook.
"Winter-over-winter demand from the industrial sector is expected to grow 5% and electric demand for natural gas is expected to grow 7%," while consumption by residential and commercial sectors will likely decline due to continued conservation in these sectors and slightly warmer weather, according to EVA.
EVA predicts that coal-to-gas switching, which began in August 2008 and has since continued at levels as high as 2.5 Bcf/d, "will persist into the upcoming winter." The coal-to-gas switching "is more than people anticipated," NGSA CEO R. Skip Horvath told reporters at the National Press Building.
But if industrial demand grows at a faster clip than expected this winter, it would put upward pressure on natural gas prices, according to the NGSA. And some of the predicted coal-to-gas switching could fall off, it said.
The NGSA, which commissioned Fairfax, VA-based ICF International to do the supply side, projects that average gas production during the upcoming heating season will increase approximately 4% to 57.5 Bcf/d from 55.2 Bcf/d last winter.
"We have strong production, storage," and they are expected to stay "relatively stable" this winter, said Steven P. Kirchhoff, vice president-Americas for ExxonMobil Gas and Power Marketing, who is serving as NGSA Chairman. " The rig count has been holding its own."
Horvath dismissed concerns that the federal government's moratorium on deepwater drilling in the Gulf of Mexico would impact the availability of natural gas this winter. "The main part of of the story is shale and so this [moratorium] doesn't really apply to that," Horvath said.
"We haven't seen a big impact of the deepwater moratorium on gas supplies" yet, Kirchhoff agreed.
The NGSA study forecasts that pipeline imports from Canada will average 6.2 Bcf/d, a decline of 0.6 Bcf or 9% compared to last winter due to decreasing production in Western Canada. However, imports of LNG are likely to rise by 0.5 Bcf to 1.9 Bcf/d, making up for Canada's reduced contribution.
However, "if there is a warmer-than-normal winter in Europe, LNG imports [to the U.S.] could be greater than expected," the NGSA said.
Going into the winter heating season, it is projected that 3,700 Bcf of natural gas will be in storage, compared to the all-time record of 3,807 Bcf set last winter. Given that the difference is not that great, storage still is considered to be at a "very robust level," the outlook said.
The NGSA is not expecting weather to be a major factor this winter, but this could change if a significantly colder (or warmer) weather pattern than expected emerges during the heating season.
For December 2010 through February 2011, the National Oceanic and Atmospheric Administration is forecasting that this winter will be slightly warmer than last winter on a national average, with colder-than-normal weather in the Northwest, warmer-than-normal weather in the South and normal winter temperatures in most of the remaining United States.
The AGA forecasts that supplies for the anticipated coldest month in the upcoming winter heating season (January) are expected to outstrip peak gas demand due to new production from emerging shale gas plays, making for a relatively stable market in the months ahead.
"We have seen tangible growth in domestic production due to an increase in domestic shale production" over the past year, said Chris McGill, managing director of policy analysis for the AGA. He noted that total domestic production rose 4 Bcf this year to 57-58 Bcf, with most of the growth coming from onshore and unconventional sources.
Approximately 2,875 Bcf is "conservatively estimated" to be available for the peak month of the 2010-2011 winter (January 2011), according to the AGA's analysis of the gas supply and demand for the winter heating season. This would be the highest recorded monthly demand level, slightly above the 2,836 Bcf which came in January 2010.
"The view that fundamentally natural gas supply may exceed even the highest levels of estimated demand during the peak month of the coming winter heating season should be a source of optimism for natural gas customers and recognizes the anticipated stability of natural gas prices for the foreseeable future," the AGA said.
Approximately 62% of total supplies for a peak winter month, or 1,800 Bcf, is expected to be supplied from domestic sources, rather than from LNG and Canadian pipelines sources, the AGA analysis said. It attributed much of the growth in supply to the shale production in basins in Arkansas, Louisiana, Texas and the Northeast. In contrast, U.S. production accounted for about 57% of the supplies for a peak month in the winter of 2005-2006, the AGA said.
LNG is expected to play a supporting role in the supply mix. "The analytical view that 10 to 20% of total annual U.S. supply would originate as imported LNG during the next 10 to 15 years has dissipated," said the gas utility group. It estimates that LNG will "conservatively represent" about 40 Bcf of peak month supply for the coming winter heating season.
However, "LNG can be a critical source of gas supply during periods of peak demand. January 2010 was the highest LNG import month this year with about 66 Bcf placed into the pipeline grid. Peak daily imports in January were about 4 Bcf/d and this fact points to the added flexibility in satisfying natural gas demand that LNG infrastructure creates," the AGA analysis said.
As for pipeline imports from Canada, their contribution to U.S. supply also will be much less this winter. "The emergence of new domestic sources of gas and some production declines in Canada have contributed to the relative decline of imports from north of the border." It is anticipated the peak month Canadian pipeline imports will total about 230 Bcf, or 8% estimated gas supply in the peak winter month.
For the upcoming heating season, the AGA said underground storage looks to be a strong contributor to satisfying gas supply requirements. At the end of August, an estimated 3.1 Tcf of working gas was in storage. While this volume was about 6% behind the record pace of last year, it was 5.5% above the five-year ago, the AGA noted.
"The importance of underground storage as a tool for meeting peak winter heating season demand for the country as a whole cannot be understated in today's natural gas market. Average sector demand for natural gas during summer months, even with the influence of natural gas to power generation, generally ranges from 45-65 Bcf/d. On a peak winter day, that daily demand can grow to 100 Bcf or more and appear quickly as a result of sudden changes in weather and temperatures."
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