Due to warm winter weather in certain regions last month,increased fuel switching and industrial slowdowns, the countryconsumed 140 Bcf less natural gas than was anticipated in January,which led to much lower spot gas prices towards the end of themonth, according to the Energy Information Administration’s (EIA)Short-term Energy Outlook for February.

Although this is good news for consumers and the energy marketin general, it doesn’t erase all of the “uneasiness about thesupply situation,” or cancel out the fact that spot prices continueto be “quite high by historical standards,” said the EIA, thestatistical arm of the Department of Energy (DOE).

Although spot prices fell to below $6/Mcf by the end of January,they averaged a record $8.98/Mcf for the entire month, the agencysaid. It projected prices will average about $6.14/Mcf for theentire winter (October-through-March period), which is more thantwo and half times the prices of last winter. The EIA sees pricesfalling during the spring and summer by about $4/Mcf from thewinter peak, assuming normal weather and low storage levelspersist. Still, it doesn’t expect them to dip much below the $4mark throughout 2001.

Working gas storage at the end of January was 38% full, or 1,241Bcf. “Although this points to an improvement for end-January stocksover previous expectations, with almost two months of winter stillto go, continuing fears about the domestic supply situation arehelping to maintain relatively high spot and futures prices,” theEIA reported. “Still, given recent spot price movements, a drop ofabout $3 per Mcf is possible in February, compared to the Januaryaverage [of] $8.98.”

Overall gas demand last month was up about 5%-6% over last year,but this was nearly half of the growth that was witnessed duringNovember and December (13%), according to the EIA. Assuming normalweather, it projects demand will grow by 2.3% in the year ahead andby 4.1 % during 2002. This compares to a demand growth of 4.3% forlast year.

To meet the anticipated growth in consumption, the EIA sees gasproduction significantly increasing by 5.4% during 2001 and by 2.5%in 2002, compared to a 1.1% growth level last year. It furtherpredicts that gas imports — mostly from Canada — will riseabout 16% this year and by another 4% in 2002. It cited a newreport by Canada’s National Energy Board that predicts gasdeliverability from western Canada will rise by 1.1 Bcf/d by 2002due to the ongoing drilling boom. Western Canada provides about 15%of the gas consumed in the United States.

In California, the agency doesn’t foresee an immediateimprovement to the power and gas supply crunch. “The situation inCalifornia is characterized by low gas storage, gas pipelinebottlenecks, high demand and low hydro and nuclear electric poweravailability. These supply problems are following on last summer’ssupply problems with no obvious end visible over the next twoyears.”

©Copyright 2001 Intelligence Press Inc. All rights reserved. Thepreceding news report may not be republished or redistributed, inwhole or in part, in any form, without prior written consent ofIntelligence Press, Inc.