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, the American Gas Association (AGA) said in a report issued Monday.

"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 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, which gets underway Nov. 1, 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 liquefied natural gas (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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