NGI The Weekly Gas Market Report
The Energy Information Administration (EIA) again raised itswholesale and retail gas price projections for the winter andconfirmed that gas storage levels at the end of December were lowerby 10% than the previous record low set in 1976.
Strong demand during November and December, which the NationalWeather Service has said were the coldest on record, reduced gasstocks to record lows for the period, and continued cold shouldkeep storage low and prices very high for the remainder of theheating season, EIA said yesterday in its Short Term EnergyOutlook.
For the fourth quarter of 2000, gas-weighted heating degree-dayswere estimated to have been up by 28% over last year’s relativelymild fourth quarter. Gas demand increased 10% over the year prior.Over the entire six months of winter (Oct. 1, 2000 to March 31,2001), EIA projects demand will rise by 7% compared to the priorwinter, with residential and commercial sector demand up by 17%over last winter.
EIA now expects wellhead prices to average $5.20/Mcf in 2001compared to an estimated $3.70 in 2000 (72% higher than in 1999)and about $4.50 projected for 2002. It also raised its projectionson retail prices to 70% above winter 1999-2000 levels.
The expected 45% increase in the nominal average residentialprice would be the highest season-to-season growth rate since atleast 1975.”
Wellhead prices from September through November were more thandouble the price of a year earlier. For the month of December, spotwellhead prices averaged “an unheard of $8.36/Mcf. Never have spotgas prices at the wellhead been this high for such a sustainedperiod of time,” EIA said. “Although high oil prices haveencouraged the current strength in gas prices, the predominantreason for these sustained high gas prices was, and still is,uneasiness about the winter supply situation.”
The American Gas Association (AGA) reported last week thatworking gas levels in storage had fallen 209 Bcf during the weekending Dec. 29 to 1,729 Bcf. “Translating the AGA data into EIAend-month statistics, we estimate that gas stocks were about 780Bcf below year-ago levels and about 520 Bcf below the previous5-year average,” EIA said. “With almost three months of winterstill to go, falling stocks have raised fears about the domesticsupply situation, helping to elevate spot and futures prices.”
The AGA made its own announcement yesterday, assuring the publicthat gas supply would be “adequate to meet customers’ needs for theremainder of the winter heating season.
“Today, there is more natural gas held in underground storage— 1.73 Tcf — than has ever been removed from storage during theremainder of any of the last five winter heating seasons,” said AGAPresident David Parker. Natural gas storage accounts for about 20%of the natural gas consumed during the winter heating season, whichtraditionally runs Nov. 1 – March 31.
“Rig counts are at record levels and new production will beforthcoming,” he noted. “But it takes time for new exploration toproduce adequate volumes of gas to meet increased demand.”
In the meantime, Parker noted, utilities are promotingenergy-efficiency tips, reminding customers of flexiblebill-payment programs and working to help low-income individuals.
EIA expects wellhead prices to remain above $6 for the remainderof the heating season, with prices averaging $6.23/Mcf this winter,”more than two and one half times the price of last winter.” EIApredicts wellhead prices during the spring and summer will drop byabout $2/Mcf as weather-related demand recedes. However, storageinjection demand should keep wellhead prices above $4 this year.
Assuming normal weather, EIA expects gas demand to grow by 2.9%in 2001 and by 2.7% in 2002, compared with estimated demand growthof 4.5% in 2000. The forecast for overall demand growth in 2001 isdown considerably from EIA’s projections last month because highergas prices have reduced expected industrial gas use (up 4% from2000) more than previously estimated. In 2002, the forecast is foreven slower growth. However, gas demand from non-utilityelectricity generation in 2001 is now expected to be up by a solid9%. Electric utility gas demand is expected to remain level withconsumption rates in 2000.
EIA increased its projections on gas production growth in NorthAmerica to 5.4% for this year and 2.5% in 2002. It projects amassive 16% increase in gas imports this year and another 4% hikein 2002. “While Canadian export capacity may not be fully utilizedthis winter, we expect net imports to be 7.8% higher than lastwinter’s imports,” EIA said, noting that the 1.325 Bcf/d AlliancePipeline began service Dec. 1. EIA also referred to a recent reportby Canada’s National Energy Board that predicts gas deliverabilityfrom Western Canada will rise by 1.1 Bcf/d by 2002 because of theongoing drilling boom.
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