The Energy Information Administration (EIA) issued an even more bullish first-quarter price projection for spot natural gas in its latest monthly outlook, ratcheting up expected prices by 6.9% to $4.45/Mcf over its December forecast of $4.16 for the quarter. This is 90% more ($2.11/Mcf) than the $2.34 average spot price for gas that was seen during the first quarter of last year.

In its short-term outlook for January, which was released last Wednesday, the Department of Energy agency also upped its price forecast for 2003 to $3.90/Mcf from $3.69 in December. The EIA cited the colder weather this heating season, lower gas inventory levels and the Venezuelan oil crisis as the reasons for its higher gas price projections. It expects the trend to continue into 2004, with prices averaging $4.12/Mcf.

The agency believes that colder than normal weather this month and in February could boost spot gas prices to as high as $6/Mcf for a short period. On average, however, the EIA said it expects wellhead gas prices to average $3.90 during the winter months (October through March), which is about 65% above last winter’s average price of $2.35.

“Considering not only the reduced cushion from natural gas in storage but also the currently high world oil prices, natural gas prices are likely to stay relatively high through the winter,” the agency noted. Underground storage levels of working gas fell below the 3 Tcf threshold level in late November, and continued to drop throughout December to below 2.4 Tcf, it said. By the end of the year, working gas in storage was 19% lower than year-ago levels.

The agency forecasts gas stocks will tally 1.11 Tcf by the close of the first quarter, significantly lower than the 1.52 Tcf level reported at the end of the three-month period a year ago.

The higher spot prices are expected to translate into increased fuel costs for heating customers this winter, with expenditures for gas-heated households likely to rise by 34%; heating oil, 43%; propane; 20%; and electricity, 12%, according to the EIA report.

While natural gas demand was relatively flat during 2002, the EIA said it anticipates consumption will see “solid growth” of 4.7% during the New Year due to expansion in the industrial sector. Demand growth is expected to continue into 2004, but at a slower pace (2.7%), it noted.

The agency projects that overall gas demand this winter will be 8.7% greater than a year ago if the colder weather continues.

Following a dismal year for production, the EIA said it is “likely that [rig] utilization rates will go up this year, keeping average prices relatively strong (nearly $4 on average).”

The “projected production level of 19.45 trillion cubic feet in 2003, which we think would be sufficient to cover incremental demand growth without extreme price pressures developing, most likely represents a solid increase from the actual level of production achieved in 2002,” the EIA said, which believes domestic production levels last year were overestimated.

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