Working gas inventories are expected to start this upcoming winter heating season at the highest mark since 1990, keeping gas prices at depressed levels in comparison to prior years, according to the Energy Information Administration’s (EIA) Short-Term Energy Outlook for September.

Working gas storage levels are forecast to total 3.429 Tcf at the end of October, which is 298 Bcf above the five-year average and 200 Bcf above the historical 3.2 Tcf level for the start of the winter season. Some experts earlier had predicted that the storage level could be as high as 3.7 at the end of October, but that was before this summer’s heat wave triggered a surge in demand from gas-fired power generation, leaving less supply available to put into storage.

As a result of the high storage level, the EIA revised downward its estimate for 2006 average Henry Hub spot prices to $7.51/Mcf from the $7.69/Mcf that it projected last month. This is down significantly from the average spot price of $8.86/Mcf in 2005. The Department of Energy agency expects annual spot prices to rebound to $8.30/Mcf in 2007.

In the near term, the EIA said it anticipates Henry Hub spot prices to hover around $6.74/Mcf in the third quarter, at the same level that was experienced in the second quarter. It sees spot prices jumping to $8.62/Mcf in the fourth period of the year, to be followed by an average of $9.48/Mcf in the first quarter of 2007.

“Barring extreme weather for the rest of the year, we expect the Henry Hub spot price to increase to an average of almost $10/Mcf by this January and then fall back to an average $7/Mcf by next summer,” the EIA said.

For the year, total domestic gas consumption is expected to be 21.63 Tcf, or about 240 Bcf below last year’s demand rate of 21.87, according to the DOE agency. Gas demand is then likely to increase by 800 Bcf, or 4.1%, in 2007. Residential demand is expected to see a dip of 7.5% this year to 4.48 Tcf from 4.84 Tcf in 2005 due to the mild weather earlier in the year, to be followed by an increase of 9.2% in 2007, assuming normal weather, the EIA said.

The EIA sees dry natural gas production increasing by 1.1% this year to 18.45 Tcf and by 1.5% to 18.73 Tcf in 2007. Total liquefied natural gas net imports are likely to rise slightly from their 2005 level of 630 Bcf to 700 Bcf this year and to 940 Bcf in 2007.

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