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, according to a winter outlook released Tuesday by the Natural Gas Supply Association (NGSA).
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 the 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 liquefied natural gas (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.
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