Due to warm winter weather in certain regions last month,increased fuel switching and industrial slowdowns, the countryconsumed 140 Bcf less natural gas than was anticipated in January,which led to much lower spot gas prices towards the end of themonth, according to the Energy Information Administration’s (EIA)Short-term Energy Outlook for February.

While this is good news for consumers and the energy market ingeneral, it doesn’t erase all of the “uneasiness about the supplysituation,” or cancel out the fact that spot prices continue to be”quite high by historical standards,” said the EIA, the statisticalarm of the Department of Energy (DOE), last week.

Although spot prices slumped below $6/Mcf by the end of January,they averaged a record $8.98/Mcf for the entire month, the agencysaid. It projected prices will average about $6.14/Mcf for theentire winter (October-through-March period), which is more thantwo and half times that of last winter. The EIA sees prices fallingduring the spring and summer by about $4/Mcf from the winter peak,assuming normal weather and low storage levels persist. Still, itdoesn’t expect them to dip much below the $4 mark throughout 2001.

Working gas storage at the end of January was 38% full, or 1,241Bcf. “Although this points to an improvement for end-January stocksover previous expectations, with almost two months of winter stillto go, continuing fears about the domestic supply situation arehelping to maintain relatively high spot and futures prices,” theEIA reported. “Still, given recent spot price movements, a drop ofabout $3 per Mcf is possible in February, compared to the Januaryaverage [of] $8.98.”

Overall gas demand last month was up about 5%-6% over last year,but this was nearly half of the growth that was witnessed duringNovember and December (13%), according to the EIA. Assuming normalweather, it projects demand will grow by 2.3% in the year ahead andby 4.1 % during 2002. This compares to a demand growth of 4.3% forlast year.

To meet the anticipated growth in consumption, the EIA sees gasproduction significantly increasing by 5.4% during 2001 and by 2.5%in 2002, compared to a 1.1% growth level last year. It furtherpredicts that gas imports – mostly from Canada – will rise about16% this year and by another 4% in 2002. It cited a new report byCanada’s National Energy Board that predicts gas deliverabilityfrom western Canada will rise by 1.1 Bcf/d by 2002 due to theongoing drilling boom. Western Canada provides about 15% of the gasconsumed in the United States.

In California, the agency doesn’t foresee an immediate end tothe power and gas supply crunch. “The situation in California ischaracterized by low gas storage, gas pipeline bottlenecks, highdemand and low hydro and nuclear electric power availability. Thesesupply problems are following on last summer’s supply problems withno obvious end visible over the next two years.”

Susan Parker

©Copyright 2001 Intelligence Press, Inc. All rightsreserved. The preceding news report may not be republished orredistributed in whole or in part without prior written consent ofIntelligence Press, Inc.