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EEA Sees Henry Hub Gas Averaging Nearly $5 for Winter

EEA Sees Henry Hub Gas Averaging Nearly $5 for Winter

The probability that Henry Hub natural gas will average $5/MMBtu during this winter heating season is 50%, while the chance for prices rising to $6/MMBtu is 20% if the weather is 5% colder than average, according to Energy and Environmental Analysis Inc. (EEA).

Even if there is a repeat of the warm winter of 1999-2000, which public and private weather forecasters doubt will occur, gas prices would manage to stay at the respectable level of $4/MMBtu, said Kevin Petak, director of EEA, an Arlington, VA-based energy consulting firm. At the other extreme, he sees only a 3% chance for a recurrence of a winter like that of 1976-1777, which was the coldest in recent history.

"Because the supply/demand balance is very tight, gas storage will be heavily relied on to maintain system reliability and keep prices in check" this winter, he noted. "As a result, storage is likely to be drawn down to very low levels."

Petak anticipates a mere 20% probability that working gas levels would dip below 200 Bcf by the end of winter. At the same time, however, he sees only a 25% chance that working gas levels would exceed 750 Bcf at the end of March - which would be the lowest level reported by the Energy Information Administration (EIA) in the past five years.

"The heavy withdrawals of gas storage that occurred last winter are likely to repeat this winter, but the amount of gas to work with is more limited this year," Petak said.

"Even though gas productive capacity will build as a result of drilling activity," he forecasts that a low amount of storage refill "is likely to keep summer prices high" next year. EEA sees a 50% probability that Henry Hub gas prices will average near or above $4/MMBtu during next year's injection season. But it predicts there's a 15% chance that prices could rise to an average of $5/MMBtu next summer if the weather puts further stresses on the tight supply/demand situation..

The EEA expects increased gas productivity from high drilling activity to begin moderating prices in 2002, with prices falling into the $3/MMBtu range. "It will take some time for supply to catch up with demand and for storage levels to get back up to historical levels," Petak said.

Susan Parker

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