EIA: Storage Near All-Time Low

The amount of working gas in storage at the end of the winter heating season (March 31) will be at a record low, according to a new report by the Energy Information Administration (EIA). In fact, some operators may be forced to dip into their base gas inventories to maintain facilities.

"Regardless of how the rest of the 2000-2001 heating season plays out, remaining working gas inventories on March 31, 2001 are likely to approach record lows and remain at low levels through the first several months of the refill season," the Department of Energy (DOE) agency said in a report on the current status and near-term outlook for storage inventories in the United States.

Specifically, the EIA predicts storage stocks of working gas would drop to 624 Bcf by the end of this month, assuming withdrawals continue at the average rate of the past five heating seasons. But if withdrawals are higher than average, they could fall to as low as 461 Bcf, it warns.

The American Gas Association (AGA) last Wednesday reported that 73 Bcf of working gas was withdrawn for the week ending March 2, which places the current level of working gas stocks nationwide at approximately 785 Bcf.

The historical low for working gas storage was recorded at the end of the 1995-96 heating season. The EIA reported at the time that U.S. gas stocks fell to 758 Bcf, while the AGA put the level even lower - at 546 Bcf.

"Even with higher-than-average withdrawal rates through the rest of [this] heating season, storage stocks are expected to be adequate to meet demand," the agency noted in its report. However, this prognosis does not take into the account the cold weather and snowstorms that gripped the Northeast and New England regions last week.

On a regional basis, the EIA predicts the 280 storage sites located in the Eastern Consuming Region will have a total of 351 Bcf in inventory by the end of March, which is 225 Bcf less than the region's five-year average stock level; the Western Consuming Region (37 sites) will end the season with about 76 Bcf, or 126 Bcf below average; and the Producing Region (98 storage sites) will have 197 Bcf remaining, or 164 Bcf below its five-year average. The estimates assume March withdrawals from storage will be on par with the five-year average rate.

The remaining gas stocks in the Eastern Consuming and Producing Regions at the end of March will be near the record low levels set at the end of the 1995-96 heating season, the EIA said. The gas storage levels in the West already are below the record low of 151 Bcf.

Despite the bleak numbers, "there is little likelihood that working gas levels for the regions will be completely drawn down" at the end of March, the agency said. "Nevertheless, working gas inventories at some sites could drop so far that operators would need to dip into base gas inventories to maintain operations."

It estimates the industry will have to inject about 10 Bcf/d for 214 days to refill storage levels sufficiently for the next winter heating season. This compares to an injection rate of 7.6 Bcf/d for the same period last year.

As operators scrape the bottom of their storage facilities to satisfy high demand, the EIA predicts there will be intensified competition during the upcoming April-October period between gas supply for storage injections and gas to satisfy baseload consumption. This will put upward pressure on prices, which, in turn, could result in less gas going into storage for next winter, the agency cautioned.

"The heavy demand for natural gas to refill depleted storage inventories between April and October 2001 will vie with baseload requirements to a greater degree than in previous years. Hot weather and renewed economic strength would both add to demand. This heightened competition for supplies should place some upward pressure on price levels," which in the end "could dampen refill activity" for the winter heating season of 2001-2002, the EIA said.

Although gas prices have been moderating, the EIA anticipates that prices during the 2001 storage refill season will exceed the average price level of the 2000 refill season.

While the upcoming refill period "could resemble that of last year's" in many respects, the agency noted "several favorable factors" could improve the situation: increased U.S. gas production, more Canadian gas imports, a decline in prices from the peak levels in early 2001, and decreased demand by industrial gas users due to higher prices.

Susan Parker

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