Natural gas prices weakened significantly in August as cooling demand levels and peak power demand stayed well below normal for the second month in a row, the Energy Information Administration (EIA) said in its Short-Term Energy Outlook for September. But it expects spot gas prices to bounce back once the winter heating season starts.

August cooling degree-days were the lowest since 1992 on a national population-weighted basis, the Department of Energy (DOE) agency said in the outlook, which was released last Wednesday. The average spot price for natural gas at the Henry Hub was $5.56/Mcf last month, which was about 7% below the projected value in the EIA’s August forecast.

The lower prices and weak summer demand spurred storage injection, bringing the end-of-August level of working gas in storage to 2,743 Bcf, nearly 2.4% above last month’s projection and about 9% above the five-year average, the EIA said.

“The higher storage levels are likely to transmit some of the current weakness in prices to the heating season months, although spot prices are still expected to rise significantly once the heating season gets under way,” it noted. The EIA did not say by how much it expected prices to increase in the heating season. But in August, it projected that prices would average more than $6/MMBtu in the fall and winter (see NGI, Aug. 16).

Pointing to the high rates of North American gas drilling, the agency said it projected about a 1.4% growth in domestic production [to 19.25 Tcf] in 2005. “Steady, if modest, increases in liquefied natural gas imports, restrained export growth, and carryover from the robust storage levels…will also contribute to an expected moderate improvement in the supply picture through 2005.”

The EIA estimates total supply in 2005 will be 22.78 Tcf, up slightly from 22.21 Tcf this year. Demand was projected at 21.93 Tcf this year, and 22.50 Tcf in 2005.

The agency said it does not expect gas spot prices, which averaged $5.80/Mcf in 2003, to post a significantly higher average this year or next. It sees Henry Hub prices averaging $5.96/Mcf this year and $6.14/Mcf in 2005.

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