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EIA: Prices to Remain Less than $3

EIA: Prices to Remain Less than $3

While wellhead prices will be 40% stronger than last winter, high levels of storage and gas imports will keep them under $3 for the better part of the heating season, the Energy Information Administration said in its October Short-Term Energy Outlook. The report was published last week.

"Our analysis indicates that storage levels are currently about equal to the relatively high levels of one year ago. This, in addition to continued high levels of gas imports, leads to the expectation that wellhead gas prices, while still trending well above last year's levels, may remain below $3/Mcf this winter unless very cold weather intervenes," the EIA said.

The EIA said net imports for 1999 and 2000 are expected to be 3.33 Tcf and 3.6 Tcf respectively. Imports from Canada will play a vital role in the increase, as the Alliance Pipeline is expected to begin service in the near future, bringing 1.3 Bcf/d from Alberta to Chicago.

Noting the abnormally high overall storage level of 3,176 Bcf at the end of last October, the report said levels this year and in 2000 will be "somewhat" lower. The most recent American Gas Association report, released yesterday, said the storage level was at 2,887 Bcf as of the last week of September.

The report also said that thanks to projected "normal weather," gas demand will continue to grow through 2000, although it will do so at a continually slower pace. The EIA expects demand to increase 2.4% and 2.3% respectively, to 21.86 Tcf in 1999 and 22.37 Tcf in 2000. This reducing increase follows the path set in 1998, when depressed oil prices were lower than prices for gas, causing many industrial customers to use oil to fuel their plants. In the next two years, the EIA expects gas to be more competitive.

While demand is expected to rise this winter in the residential (10.2%), commercial (12.3%) and electric sectors (8.7%), the EIA expects it to experience a 0.7% decrease in the industrial area. "The increase in natural gas demand is expected to be across all sectors, with the exception of the industrial sector... which is expected to be down 0.7% from its relatively high 1998 level."

John Norris

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