The Energy Information Administration (EIA) last week in its Short-Term Energy Outlook for November used the word “robust” for the first time this year to describe the amount of natural gas in storage to meet customer demand. The unseasonably warm weather at the start of the winter heating season, reduced industrial demand, and historically high injections throughout the year are credited for the bulging inventory.

About 3,155 Bcf of working gas was in storage by Oct. 31, according to EIA weekly storage estimates. That level is 95 Bcf more than the five-year average, 10 Bcf more than at the same time last year and is considered sufficient by the industry to satisfy heating season demand unless very severe winter weather conditions prevail. The above-average gas inventories and warm weather, particularly in the Northeast and Midwest, have put downward pressure on spot prices at the Henry Hub, causing them to dip below the $4/MMBtu mark on Oct. 31 for the first time this year. But, it noted mid-winter gas futures remain near $5/MMBtu. Henry Hub prices also have rebounded back over $4.50.

“Continued above-average temperatures would yield new downward pressure on heating fuel prices during the fourth quarter, but consumer prices for fuels still seem poised to exceed year-ago levels during the October-to-December period,” according to the Department of Energy (DOE) agency.

The EIA projects that household heating bills for natural gas-heated homes will be 6% higher this winter. At the same time, it expects spot prices to be in the range of $4.50-$5/MMBtu this heating season, which is about half of what residential customers will pay at the burnertip ($9/Mcf range). The EIA’s spot price forecast for the winter was unchanged from its October outlook.

For the entire year, the EIA said wellhead prices are projected to average $4.90/Mcf, up by almost $2/Mcf over the 2002 annual average. This will be the largest U.S. annual wellhead price increase on record.

But 2004 is expected to be a different story. The average annual wellhead price in 2004 is likely to drop by 90 cents/Mcf, pushed down by significant gains in net gas imports (5% more than 2003 levels), an above-average storage level throughout the entire year, slow gas demand growth and a projected decline in crude oil prices, according to the agency.

The EIA anticipates that gas demand will be down by about 2% (to 22.06 Tcf) this year as high prices discouraged consumption, particularly in the industrial and electric power sectors. A modest rise of nearly 1% in demand (to 22.26 Tcf) may occur in 2004.

Demand for gas this winter is likely to be about 2% lower than a year ago due largely to the effect of weaker heating-related demand. Nevertheless, “winter natural gas prices are projected to be about 10.5% higher than last winter in the residential sector as cumulated natural gas utility costs through 2003 are recovered in higher household delivered charges,” the EIA said.

On the supply side, natural gas production is projected to finish out the year 3% ahead of 2002, the DOE agency noted. Some industry analysts, meanwhile, are projecting production declines. The EIA expects U.S. dry gas production to end the year at 19.62 Tcf compared to 19.05 Tcf in 2002. For 2004, EIA is projecting production will fall to 19.18 Tcf.

Pipeline imports from Canada are expected to fall 11% this year to 3.35 Tcf from 3.78 Tcf, while liquefied natural gas imports are projected to increase 157% to 590 Bcf from 230 Bcf in 2002. Both LNG and pipeline imports are expected to grow next year by 8% and 6%, respectively.

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