The Energy Information Administration (EIA) is predicting that natural gas spot prices will remain in the $4.80-$5.50/MMBtu range for the rest of 2003, assuming normal weather. Natural gas wellhead prices are projected to average $4.97/Mcf for the year, an increase of about $2/Mcf over the 2002 annual average, which will be the largest annual wellhead price increase on record, EIA said in its September Short Term Energy Outlook.

For 2004, EIA expects average annual wellhead prices to ease by about $1/Mcf, or almost 20%, as gas supply is projected to rise. EIA is showing a 2.4% increase in domestic dry gas production this year to 19.51 Tcf and a 0.6% increase next year to 19.39 Tcf. Liquefied natural gas supply is expected to rise 113% this year to 0.49 Tcf and another 20% next year to 0.59 Tcf/year. Net imports are expected to end the year down slightly to 3.47 Tcf but are expected to rise 6.6% next year to 3.70 Tcf.

“Moreover, assuming that petroleum prices ease in 2004, the ceiling for the price of natural gas in the competitive sectors (electric utilities and industrial) would also be lowered [in 2004],” EIA said.

The agency projects that residential gas customers will pay about 10-15% more for gas this winter compared to last. Much of the price difference is expected to occur in the fourth quarter when wellhead prices are projected to be about $1/Mcf higher than one year earlier, or about $4.59/Mcf. Wellhead prices are expected to drop to $4.30 in 1Q2004, fall to $3.66 in 2Q2004 and then rebound in the third and fourth quarters of next year to $3.87 and $4.14, respectively.

Gas demand is expected to end this year flat as increases in the industrial and commercial sectors were canceled out by lower demand from the power sector. Summer 2003 gas demand is expected to be down 2.6% compared to last summer mainly because of 11% fewer cooling degree-days and the effect of high natural gas prices on consumption in the industrial and electricity-generating sectors. Summer natural gas wellhead prices are estimated to have risen about 60-70% above last year.

“These factors dampened demand and enabled the record high levels of natural gas storage injections seen in the past few months, when weekly net storage additions exceeded the five-year average in 18 of the past 20 weeks,” EIA noted. “However, at the end of August, working natural gas in storage stood at about 2.4 Tcf, or 13%, below the year-ago level, but close to normal. Barring any disruptions, aggregate working gas storage is expected to reach 3 Tcf by the end of October.”

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