Expect weakening prices and slow gas demand growth this year,the Energy Information Administration said last week in a sharpdeparture from earlier forecasts. Its July Short-Term EnergyOutlook is based on first-quarter data that show a “surprising”5.1% decline in industrial gas use compared to the same period in1997, despite a 3.4% increase in industrial output by gas-intensivemanufacturers.

In contrast to last month’s outlook in which the industrialsector was the primary positive area of natural gas demand growth,along with the utility sector, EIA’s current view is that the onlystrength in gas demand this year will be due to growth inelectricity generation.

“Total gas demand is now expected to be down 1.6% in 1998, afact which, along with very high current levels of gas in storage,suggests the potential for renewed downward pressure on gas prices,especially if summer cooling demand fizzles,” EIA said. Natural gasdemand last year was estimated to be 21.99 Tcf.

Total natural gas in underground storage ended the heatingseason well ahead of last year’s level, and is expected to remainahead through the end of 1998. Gas storage levels are estimated tohave been over 400 billion cubic feet higher at the end of Junethan they were a year ago (Figure 20), with each of the three gasconsuming and producing regions holding more gas in storage thanthey did a year ago.

Given the demand and storage scenario, EIA expects productiongrowth to moderate. U.S. gas production is expected to rise byabout 1.2% in 1998 from 1997 levels. And dry gas production growthin 1999 is expected to remain at about the 1998 rate.

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