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EIA 'Substantially' Raises Gas Price Forecast

EIA 'Substantially' Raises Gas Price Forecast

Many market prognosticators have realized recently that their gas price projections are quite a bit too low for the rest of the year because of declining gas wellhead deliverability, a reduced storage surplus relative to last year and ever increasing gas demand. The Energy Information Administration joined that crowd yesterday, concluding its wellhead price forecast for the fourth quarter was 25 cents too low. It raised it to $2.41/Mcf in its May Short Term Energy Outlook.

A month ago, EIA was saying wellhead prices wouldn't make it above $2 this year. But its revised wellhead price forecast for the year jumped 21 cents to $2.08. "A tighter supply and demand situation (declining storage and increased demand), higher crude oil prices, cool spring weather, and a diminishing natural gas rig count are all factors contributing to the expected higher prices," EIA said. "The composite spot wellhead price, for example, increased by about 18% from March to April due in part to expected strength in gas demand for power generation during the cooling (air conditioning) season. We are now projecting prices over $2/Mcf throughout the forecast period. Next year, assuming normal weather, natural gas prices at the wellhead are projected to continue to increase (by about 9%) as the supply/demand balance is projected to become even tighter."

The increase in prices is expected to slow the decline in gas production for the year to a 0.5% drop, or 18.83 Tcf. But summer gas demand for gas-fired generation is expected to get a boost from higher oil prices. "With crude oil prices now expected to be about 20% higher than year-earlier levels this summer, a much smaller propensity for power generators to substitute oil for other fuels (including gas) this summer is anticipated than was the case 2 months ago," EIA said.

EIA's latest estimates indicate gas demand was up by about 220 Bcf (3.2%) in 1Q99 compared to the same period in 1998. EIA expects total gas demand to increasing by about 610 Bcf (2.9%) this year. Much of the annual increase is expected to occur in the fourth quarter.

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