Higher natural gas prices are expected to lead to a 2.3% demand decline in 2003, according to the Energy Information Administration’s (EIA) Short-Term Energy Outlook released Monday. The agency noted that the decline would largely come from the industrial and electric power sectors.

However, despite the price related demand destruction in 2003, the EIA said it expects that growth in the economy, along with somewhat lower projected annual average prices, will push 2004 demand up nearly 1%.

Comparing this year’s winter outlook with actual results from past winters, the EIA said it expects the average natural gas heated home this year to experience a 6.1% rise in its natural gas bill over last winter and an increase of 41.3% since the winter of 2001-2002. The agency predicts the average winter bill of a heating oil-fueled house will drop 4.4% from last year, but increase 49.1% over the winter of 2001-2002. Propane heated homes should see no change from last year, but have a 26.6% rise from 2001-2002 and homes with electric heat should be up about 2% from the previous year. The EIA noted that its projections are national average values and that actual heating bill changes may vary widely by region due to differences in weather and fuel price developments.

EIA said that gas prices were lower in November than previously expected, but forward price expectations remain sensitive to weather conditions. The agency took note of the large price spikes in futures trading at the end of the first week in December as cold weather and sizeable snow falls blanketed the Eastern United States and gas storage levels declined faster than expected.

“Spot prices above $5 per million Btu remain likely over the next few months if normal weather (or colder) prevails, especially with oil prices remaining at relatively high levels,” the EIA said in its outlook. “Natural gas storage levels are still above average and hold the potential to push prices back down if warm temperatures and weak heating demand materialize later in the winter, just as upward spikes remain a strong possibility if the weather turns cold.”

Gas production is expected to increase about 2.4% this year, but should decline in 2004 as drilling intensity drops, the government agency said. In 2004, the projected gap between falling production and rising demand will be offset by lower storage injection requirements than those seen in 2003, EIA said.

Demand for electricity should remain near flat this year from its 2002 level, but will grow by about 2% for 2004 as economic expansion accelerates. “Following the relatively strong increase in demand in the first quarter due to cold weather, declines in demand occurred during the second and third quarters, also driven largely by weather factors, i.e., lower cooling demand this summer than last summer,” the agency added.

Despite the prediction that nuclear generation in 2003 will be lower than last year by 1.8%, the EIA maintains that nuclear generation will increase 2.4% in 2004 as nuclear plants that experienced extended outages in 2003 are expected to be back online.

The outlook also said that hydroelectric generation is expected to increase in 2004 due to the somewhat recovered levels of precipitation this year. Additional renewable sources for generation, led principally by wind power, are expected to continue to expand through 2004, according to the outlook.

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