Total demand for natural gas will average 64.9 Bcf/d in 2010 and 64.6 Bcf/d in 2011, about 0.5 Bcf/d higher than previously forecast, driven primarily by strong growth in the industrial and electric power sectors, according to a Short-Term Energy Outlook released by the Energy Information Administration (EIA) Tuesday.
Industrial sector demand is expected to increase 6.1% (1 Bcf/d) and electric power demand will increase 5.5% (1 Bcf/d) in 2010 compared with 2009, EIA said. The outlook calls for demand growth in the industrial sector to slow to 0.2 Bcf/d next year.
Henry Hub natural gas spot prices are expected to average $4.49/MMBtu in 2010, up 54 cents from 2009’s average price but well below the $5.17 average gas price projected in March, due in large part to an expected decline in drilling activity over the next several months, according to the outlook. EIA projects the Henry Hub spot price to average $5.06/MMBtu in 2010.
EIA also increased by 0.5 Bcf/d its projected total marketed production for 2010, saying it now expects a 1.2 Bcf/d (2.1%) increase to 61.2 Bcf/d, but said 2011 production will retreat almost 0.5 Bcf/d to 60.8 Bcf/d.
“Natural gas production grew steadily over the first three months of this year as the number of working natural gas rigs reported by Baker Hughes increased from 759 to 941,” EIA said. “The production forecast was revised upwards as the number of working rigs continued to increase to almost 970 at the end of May.”
Partially offsetting potential production increases are estimates of shut-in production based on the National Oceanic and Atmospheric Administration’s (NOAA) latest hurricane forecast, according to EIA. NOAA has said it expects the 2010 hurricane season, which began June 1, to be “active to extremely active,” with 14-23 named storms, including eight to 14 hurricanes, three to seven of them intense (Category Three or greater) (see Daily GPI, May 28a). The consensus forecast is for a more-active-than-usual season (see Daily GPI, May 26; May 20; April 21; April 8).
“Tropical storm activity and the accompanying production outages are expected to be significantly higher this year than last year. EIA estimates the median outcome for projected total shut-in production due to tropical storms from June through November 2010 is 166 Bcf, compared with an estimated 19 Bcf [of] shut-in production last year,” EIA said. “Pipeline imports are expected to play an important role in offsetting forecast hurricane-related production outages in the Gulf of Mexico.”
President Obama’s moratorium on drilling or planned drilling in the Gulf of Mexico (GOM) in response to the explosion on the Deepwater Horizon rig and mammoth oil spill (see Daily GPI, May 28b) is expected to result in a GOM production decline of about 0.03 Bcf/d in September 2010 to 0.24 Bcf/d by December 2011, according to the EIA outlook.
Liquefied natural gas (LNG) imports are expected to increase by 0.27 Bcf/d (22%) this year and 0.16 Bcf (11%) in 2011 respectively, according to EIA.
“Despite this growth, high prices in the European and Asian markets relative to the United States will continue to draw LNG cargoes, with the United States serving as a secondary market,” EIA said.
With working storage at 2,357 Bcf on May 28 (see Daily GPI, June 4) — 38 Bcf higher than the same week last year — EIA said it expects inventories at the end of October to be about 3,805 Bcf, slightly below the level reached at the end of October last year and the peak inventory of 3,837 Bcf reached on Nov. 27, 2009.
Total consumption of electricity across all sectors is projected to grow by 3.1% this year and by 0.9% next year, EIA said.
Residential electricity prices are forecast to average 11.6 cents/kWh this year and 11.9 cents/kWh in 2011, according to EIA’s outlook. While estimated residential electricity prices during the first quarter averaged 10.8 cents/kWh, down from 11.2 cents during the same period in 2009, rising fuel costs for gas and coal generation compared with last year are likely to push up retail prices later this year, resulting in a relatively flat annual growth rate for residential prices.
Although the level of electric power sector generation from natural gas was 9% lower in March compared with the same month last year, EIA said it expects electricity generation from natural gas in April and May to have been about 11% higher than during the same period of 2009. “This growth in generation from natural gas over last year should continue over the next few months until higher natural gas fuel costs begin to favor increased dispatch of coal-fired generation in areas where the two fuels compete closely for the baseload power market,” EIA said.
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