Industrial gas demand should be down by only about 1-1.5 Bcf/d (out of 22 Bcf/d) this summer — not the 20% drop some analysts predicted — and demand from power generators probably will fall by about 2 Bcf/d to a total for the sector of about 10.4 Bcf/d, according to energy consultants at Energy and Environmental Analysis Inc. (EEA). But those demand losses should be offset by the substantial increase in demand to refill storage inventories.

EEA consultants expect storage to fall to a record low of 569 Bcf at the end of this month. Refilling storage this summer will require much larger injections than what was seen last year. EEA predicts storage injections this year will average 10.4 Bcf/d from April through October compared to 7.7 Bcf/d in 2002 over the same period. Total gas demand during the injection season is projected to increase by 2.7 Bcf/d so that the industry can fill storage to 2.8 Tcf by the end of October.

As a result, EEA raised its gas price forecast to $6.50 from $5.00 for this year and next year. It also said it expects Henry Hub prices to range from $5.75 to $7 during the storage injection season this year and average $6.50. Prices are expected to range between $5.00 and $9.00 next winter and should average $7, EEA said in its Monthly Gas Update.

Despite the difficult market conditions, EEA said the “news for gas consumers is that the sky is not falling, as some analysts have led us to believe. The market will respond to higher prices. Several things will work against higher prices. We have already started to see a significant increase in drilling activity during this past month. In addition we are starting to see many new and creative proposals to bring more gas to market, but implementation will take time.”

The rig count is on the rise and liquefied natural gas (LNG) imports are expected to increase. However, LNG accounted for only 1% of supply last year and even substantial growth still will equate to relatively small volumes. EEA predicts that LNG will account for 8% (2 Tcf) of total domestic supply by 2010.

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