The Energy Information Administration (EIA) expects spot natural gas prices to remain between $5.50 and $6.00/MMBtu through the rest of 2003 because of the low level of gas in storage, the Energy Department agency’s Short-Term Energy Outlook reported Friday.

The price forecast is based on normal weather. “Above average prices and strong gas-directed drilling efforts this year will be needed to ensure that gas in storage reaches at least minimally adequate levels by the beginning of the next heating season. If adverse weather intervenes, the task could be made more difficult and even place additional upward pressure on prices,” EIA said.

Energy Secretary Spencer Abraham, commenting on the latest outlook, noted he had called a special meeting of the National Petroleum Council for late June to “discuss problems and solutions and identify those actions that can be taken immediately to ease short-term supply constraints. The challenge requires us to act today.” The meeting will be held June 26.

EIA noted that the natural gas spot price at the Henry Hub has remained well above $5/MMBtu on a monthly basis since the beginning of the year and was above $6 in the first week of June.”Natural gas prices will likely remain high as long as above-normal storage injection demand competes with industrial and power sector demand for natural gas. Above average prices and strong gas-directed drilling efforts this year will be needed to ensure that gas in storage reaches at least minimally adequate levels by the beginning of the next heating season,” the Outlook said.

EIA sees gas demand this summer falling by close to 1% from last summer’s level. Assuming normal weather, cooling degree days would be about 8% under last summer. High prices are expected to keep natural gas-generated electricity production to only a small amount of growth in 2003, while oil-generated power is expected to increase by about 28% as generators substitute the lower-priced fuel.

On the other side gas production is expected to increase by 2.2% this year. “High natural gas prices and sharply higher oil and natural gas field revenues are driving the resurgence in natural gas-directed drilling activity this year following the downturn in 2002,” EIA said. Monthly oil and natural gas field revenues are expected to continue to average over $400 million this year

And while domestic production growth should continue in 2004, the extra effort might result in increases of less than 2%. Whether prices remain at high levels will depend on the success of the new drilling efforts.

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