U.S. natural gas working inventories hit a record high in November of 3.923 Tcf, but domestic inventories ended January at an estimated 2.7 Tcf, or 0.2 Tcf below January 2012 levels, according to the Energy Information Administration (EIA). The lower storage numbers were blamed in part on wellhead freeze-offs in several onshore basins.
In the latest Short-Term Energy Outlook (STEO) released on Tuesday, EIA said U.S. gas inventories fell from November peaks (see Daily GPI, Dec. 12, 2012) on cold weather and wellhead freeze-offs.
Even with less gas in storage, Henry Hub spot prices this year are expected to be lower than predicted a month ago. EIA now expects 2013 prices to average $3.53/MMBtu, which is 21 cents lower than forecast in January (see Daily GPI, Jan. 9). In 2012 gas prices averaged $2.75/MMBtu. Next year prices are expected to strengthen somewhat to average $3.84.
“Cold weather helped drive northeastern natural gas prices up at the end of January,” the STEO said. “The U.S. Northeast is infrastructure-constrained, and the tight supply-demand balance during extreme cold or heat often leads to price spikes. Prices at Transcontinental Pipeline’s Zone 6 delivery point, which serves New York City, and at the Algonquin Citygate, which serves Boston, both rose above $30/MMBtu on Jan. 24 and 25.”
January’s cold temperatures also affected gas production in the West, the report said.
“Producers reported wellhead freeze-offs in the San Juan, Green River, Uinta and Piceance basins, according to recent Bentek Energy reports. As natural gas production in the United States shifts from offshore to inland, well freeze-offs have become a greater supply disruption risk.”
EIA expects gas consumption to average 70.3 Bcf/d this year and fall slightly to 70 Bcf/d in 2014. The latest forecast “is a significant upward revision from last month’s expectation of 69.7 Bcf/d and 69.4 Bcf/d in 2013 and 2014, respectively.”
The upward revisions, said the STEO, mostly followed changes to historical industrial sector consumption data, which were revised upwards in the recent EIA Natural Gas Annual (see Daily GPI, Dec. 6, 2012).
“Forecasts for closer-to-average winter temperatures in 2013 and 2014 (compared with the record-warm temperatures in 2012) lead to increases in natural gas used for residential and commercial space heating,” the STEO said. “Despite Punxsutawney Phil’s recent forecast of an early spring this year, a 15% increase in U.S. population-weighted heating degree days from 2012 to 2013 is still projected.”
The projected increase in gas prices “contributes to a decline” in gas used for electric power generation from 25 Bcf/d in 2012. This year gas use is forecast to fall to 23.1 Bcf/d; in 2014 it’s seen falling to 22.6 Bcf/d.
“Consumption over the forecast period is less than the record-high 2012 levels but remains high by historical standards and reflects an ongoing structural shift toward using more natural gas for power generation,” EIA said.
Brent crude oil spot prices, which averaged $112/bbl in 2012 and rose to $119 in early February, are forecast to average $109/bbl this year and then fall to $101 in 2014, according to the STEO.
“The projected discount of West Texas Intermediate (WTI) crude oil to Brent, which averaged $18/bbl in 2012, averages $9.00/bbl in 2014 as planned new pipeline capacity lowers the cost of moving Midcontinent crude oil to the Gulf Coast refining centers.”
According to the STEO, U.S. total crude oil output averaged 6.4 million b/d in 2012, an increase of 0.8 million b/d from 2011. Projected output is expected to continue to rise, hitting 7.3 million b/d this year and 7.8 million b/d in 2014.
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