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EIA: March Cold, Sluggish Production Bump Price Forecast Higher

The Energy Information Administration (EIA) joined a growing list of analysts raising 2013 natural gas price forecasts, saying in a Short-Term Energy Outlook (STEO) released Tuesday that it expects spot prices, which averaged $2.75/MMBtu at the Henry Hub last year, to climb to an average of $3.52 this year and $3.60 in 2014.

The 2013 price forecast is an 11 cents/MMBtu increase and the 2014 number a 3 cents/MMBtu decrease compared with EIA's previous forecast (see Shale Daily, March 13).

Natural gas spot prices averaged $3.81/MMBtu at the Henry Hub in March, up nearly 48 cents from the $3.33/MMBtu average seen the previous three months. March was about 17% colder than forecast in last month's STEO, which contributed to an increase in natural gas consumption and larger-than-expected storage withdrawals, EIA said.

As of March 29, working gas stocks totaled 1,687 Bcf, which was 779 Bcf less than at the same time in 2012 and 37 Bcf below the five-year average, according to EIA's Weekly Natural Gas Storage Report. EIA projects that working gas stocks at the end of this summer's stock-build season will reach 3,793 Bcf, about 137 Bcf below the level at the same time last year.

"Unusually cold temperatures in March led to larger-than-expected withdrawals of natural gas from storage," said EIA Administrator Adam Sieminski. "The 94 Bcf of gas pulled out of storage for the week ending March 29 was the largest net withdrawal for this time of year since EIA began its weekly storage data collection in 2002."

A parade of analysts at Raymond James & Associates Inc., Tudor, Pickering, Holt & Co. Inc., Morgan Stanley, Goldman Sachs, Barclays Capital and Stephen Smith Energy Associates have all recently predicted higher natural gas prices this year (see Shale Daily, April 9; April 4). The reasons cited by those analysts include the cold end to the 2012-2013 winter and EIA Form 914 data indicating declining production. Analyst price predictions for 2013 have run as high as $4.11/MMBtu in a bull-case forecast.

EIA said natural gas futures prices for July 2013 delivery (in the five-day period ending April 4) averaged $4.07/MMBtu. The lower and upper bounds for the 95% confidence interval for July 2013 contracts are $3.16/MMBtu and $5.23/MMBtu, respectively, compared to $1.56/MMBtu and $3.69/MMBtu at this time last year.

In the most recent STEO, EIA projects that natural gas marketed production will increase to 69.3 Bcf/d this year and 69.4 Bcf/d in 2014 from 69.1 Bcf/d last year. "Onshore production increases slightly over the forecast period, while federal Gulf of Mexico production declines," the agency said.

EIA said it expects natural gas consumption to average 70.3 Bcf/d in 2013 and 70.1 Bcf/d in 2014. "Forecasts for closer-to-average winter temperatures in 2013 and 2014 (compared with the record-warm temperatures in 2012) will lead to increases in natural gas used for residential and commercial space heating," the agency said. The projected increase in natural gas prices should contribute to a decline in natural gas used for electric power generation to 22.9 Bcf/d this year and 22.8 Bcf/d next year, compared with 25.0 Bcf/d in 2012.

Natural gas pipeline gross imports, which have declined over the past five years, are projected to remain near their 2012 level over the forecast period, and liquefied natural gas imports are expected to remain below 0.5 Bcf/d through 2014.

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