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Producers Could Return to Gulf Coast Basins for Better Natural Gas Price, Says EIA

The Northeast may not be as compelling for natural gas producers looking to get the best price for their product, and some may consider moving toward the Gulf Coast basins once again, according to the U.S Energy Information Administration (EIA).

In its January Short-Term Energy Outlook (STEO) on Tuesday, the first to include forecasts for 2015, EIA said domestic gas output in 2014 will continue to rise, led by "rapid" Marcellus Shale production. Output for the year is forecast to increase on average about 2.1% from 2013. In 2015, gas output also would rise, albeit more slowly, at a rate of about 1.3%.

EIA lifted its outlook for gas prices this year to $3.89/MMBtu, about 11 cents higher than it predicted a month ago, while prices in 2015 are seen averaging $4.11.

Analysts suggested in the latest STEO that domestic gas operators may look beyond the Northeast to fetch the best price for their production.

"Rapid Marcellus production growth is causing natural gas forward prices in the Northeast to fall even with or below Henry Hub prices outside of peak-demand winter months," STEO said. "Consequently, some drilling activity may move away from the Marcellus back to Gulf Coast plays such as the Haynesville and Barnett, where prices are closer to the Henry Hub spot price."

New England and New York had the biggest gas price gains in 2013, with the average wholesale price for natural gas at Henry Hub in Erath, LA, rising 35% to $3.73/ MMBtu, according to a separate brief issued by EIA also on Tuesday. Increased winter demand last year "pushed inventories down and prices up to above $4.00/MMBtu in March and April, but decreased consumption for electric generation over the summer and positive (but flattening) production growth kept 2013 prices at their lowest level since 2002 with the exception of 2012," forecasters said.

"The price increases were relatively uniform, except in the northeastern United States, where cold-weather-driven demand spikes exacerbated the impact of pipeline constraints in Boston and New York City markets."

The cold weather last month led to widespread freeze-offs that disrupted production for several days, the STEO said, "in the Piceance Basin in Utah and Wyoming, the Uinta Basin in Utah, the San Joaquin Basin in California, and the Williston Basin in North Dakota. Imports from Canada helped mitigate the loss of supply..." The gas demand led to the largest storage withdrawal for the week ending Dec. 13 since recordkeeping began in 1994.

Going forward, long-term gas production declines are seen continuing in the Gulf of Mexico, falling slightly this year and moderately in 2015. However, growing domestic output would continue to replace Canadian pipeline imports and increase exports to Mexico, analysts said.

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