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EIA Sees Depressed Spot Market Until 4Q

EIA Sees Depressed Spot Market Until 4Q

The current storage surplus and expected "normal" temperatures this summer (14% cooler than last summer) will continue to put a damper on spot prices until the fourth quarter of this year, the Energy Information Administration predicted yesterday in its Short-Term Energy Outlook. The EIA said wellhead prices should remain below $2/Mcf until November.

EIA's latest data show storage at the end of the first quarter was 160 Bcf higher than year-ago levels. Working gas in storage at the end of the heating season (March 31) was at an estimated 1,354 Bcf, the highest level at the end of March since 1992, EIA said. The surplus probably will hold down gas prices below prices at the same time a year ago until the fourth quarter. The EIA expects wellhead prices to average $1.74/Mcf in the second quarter, $1.80 in the third quarter and $2.16 in the fourth quarter, compared with $2.07, $1.92 and $1.88, respectively, last year.

By the fourth quarter the decline in gas deliverability because of the sharp drop in drilling this year will begin to take its toll. EIA said it expects U.S. gas production to decline by about 0.5% to 18.83 Tcf in 1999 because of the extended period of low commodity prices and the resulting drilling decline. Imports are expected to increase to 3 Tcf this year from 2.97 Tcf in 1998.

".We project natural gas prices to stay relatively moderate, peaking for the year at $2.35 /Mcf in December. Next year, with the assumption of normal winter weather (which would imply 8-9% higher heating degree-days for the heating season), natural gas prices at the wellhead are projected to grow by about 15%. Underlying this forecast are first quarter 2000 underground natural gas storage level projections that are 6% below year-earlier levels, while at the same time, total gas demand is expected to be about 7% greater."

EIA is projecting total gas demand will grow at annual rates of 2.8% in 1999 and 2.5% in 2000. Except for industrial gas demand, which is projected to be flat, gas demand is expected to grow across all sectors in 1999 and 2000 under the assumptions of normal weather conditions and continued, although slowing, economic growth. Residential and commercial demand for natural gas in 1999 is projected to rebound from the decrease seen in 1998, when the weather during the heating season was relatively mild. Electricity demand for natural gas is also expected to continue to grow, but at a somewhat slower pace than the high rate of 9.9% seen in 1998.

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