The Natural Gas Supply Association (NGSA), which represents the nation’s biggest natural gas producers, has warned consumers to expect high gas prices this winter and a gas market situation similar to what occurred last winter.

“Certainly fears of a major upheaval in the marketplace have eased due to the very strong recovery this summer of natural gas [storage] inventories, but that doesn’t mean we’re out of the woods in terms of supply costs,” said NGSA Chairman William L. Transier.

He said that NGSA doesn’t predict winter gas prices, but it’s clear from gas prices over this year’s gas storage injection season (average $5.98/MMBtu) that much of the natural gas that has been stored for winter already is priced higher than last winter’s supply.

In its Natural Gas Winter Outlook, NGSA said it is expecting about the same amount of domestic gas production as there was last winter (15.6 Bcf/d this winter compared to 15.7 Bcf/d last winter) despite a much stronger rig count (859 compared to 694) and higher annual well completions this year (19,600 compared to 17,052 last year).

“Producers are responding aggressively to these ongoing market demands,” said Transier. “However, it’s clear that we are working a lot harder just to maintain a steady supply. Even with these increases, production is expected to remain almost flat…”

NGSA is expecting slightly lower Canadian imports (9.5 Bcf/d compared to 10 Bcf/d last winter) because of accelerated decline rates among producing wells in Canada.

Those supply declines are expected to be partially offset by increasing imports of liquefied natural gas (1.54 Bcf/d this winter compared to 0.76 Bcf/d last winter) and the significant demand destruction this year, particularly in the industrial and manufacturing sectors.

However, the gas industry will be serving a strengthening economy during what is expected to be normal winter weather. Using data from Global Insight, NGSA predicts total industrial production will be up 1.4% this year compared to up 1.3% last year. Gross domestic product also is expected to be up 3.6% this year compared to a 2.5% increase last year.

As always the weather will a major factor in determining the gas market situation this winter, NGSA noted. The National Oceanic and Atmospheric Administration is forecasting near normal temperatures with about 3,500-3,550 heating degree days compared to 3,643 last winter, which was 1.2% colder than normal.

“While a normal winter would serve to support wholesale prices at their present level, a weather pattern similar to last year’s would lead to further upward pressure in the market, especially if the coldest temperatures are again concentrated in those regions that mainly use natural gas for heating — the Northeast, Midwest and Mid Atlantic states,” NGSA said in its outlook. “A colder-than-normal winter across the entire U.S. on the other hand would likely result in greater volatility and short term price spikes. If it is a milder winter than last year as some are forecasting, the opposite is likely.”

The association noted that the federal government and some independent analysts are predicting that wholesale gas prices, which are now between $4 and $5/MMBtu “will remain in the $4-6 range throughout the heating season.”

“The tight balance between supply and demand also means that deviations from the forecast have the potential to more significantly affect the supply/demand equation, and consequently, customer bills through the first quarter of 2004 and perhaps beyond.”

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