Industrial demand for natural gas is off about 6% from this time last year, a contributing factor to the continuing decline in gas prices, according to Energy and Environmental Analysis (EEA), an Arlington, VA-based consulting firm.

Total natural gas consumption by U.S. industries over the first quarter of 2001 fell by almost 4 Bcf/d compared to the same period last year, from nearly 26 Bcf/d to just over 22 Bcf/d. The decline in industrial demand has been attributed partly to fuel switching and partly to manufacturing downtime due to the overall economic decline. The Federal Reserve notes a 4% decline in industrial production from September 2000 to May 2001.

And, thanks to the soft economy, expected double-digit growth in power generation demand failed to materialize this year. Gas-fired generation should come in around 7% higher than last year’s level, EEA says, while overall electricity sales just barely outstrip last year’s levels.

The demand decline, coupled with rising productive capacity and higher than expected gas storage levels, led EEA to reduce their near-term forecast for natural gas prices to below the $4/MMBtu level. The group expects storage to reach 3.3 Tcf by the beginning of the heating season, or 600 Bcf more than was available last year.

EEA expects August prices to average $3.48/MMBtu. It projects September-October prices to average $3.08/MMBtu. And depending on weather, the monthly average of the Henry Hub price during next winter — November 2001 through March 2002 — will likely range between $2.00/MMBtu and $4.50/MMBtu, EEA said.

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