The current storage surplus and expected “normal” temperaturesthis summer (14% cooler than last summer) will continue to put adamper on spot prices until the fourth quarter of this year, theEnergy Information Administration predicted last week in itsShort-Term Energy Outlook. The EIA said wellhead prices shouldremain below $2/Mcf until November.

EIA’s latest data show storage at the end of the first quarterwas 160 Bcf higher than year-ago levels. Working gas in storage atthe end of the heating season (March 31) was at an estimated 1,354Bcf, the highest level at the end of March since 1992, EIA said.The surplus probably will hold down gas prices below prices at thesame time a year ago until the fourth quarter. The EIA expectswellhead prices to average $1.74/Mcf in the second quarter, $1.80in 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 becauseof the sharp drop in drilling this year will begin to take itstoll. EIA said it expects U.S. gas production to decline by about0.5% to 18.83 Tcf in 1999 because of the extended period of lowcommodity prices and the resulting drilling decline. Imports areexpected 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 theassumption of normal winter weather (which would imply 8-9% higherheating degree-days for the heating season), natural gas prices atthe wellhead are projected to grow by about 15%. Underlying thisforecast are first quarter 2000 underground natural gas storagelevel projections that are 6% below year-earlier levels, while atthe same time, total gas demand is expected to be about 7%greater.”

EIA is projecting total gas demand will grow at annual rates of2.8% in 1999 and 2.5% in 2000. Except for industrial gas demand,which is projected to be flat, gas demand is expected to growacross all sectors in 1999 and 2000 under the assumptions of normalweather conditions and continued, although slowing, economicgrowth. Residential and commercial demand for natural gas in 1999is projected to rebound from the decrease seen in 1998, when theweather during the heating season was relatively mild. Electricitydemand for natural gas is also expected to continue to grow, but ata somewhat slower pace than the high rate of 9.9% seen in 1998.

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