Due to a relatively warm February and “price-induced reductionsin gas demand,” the winter natural gas crisis is not as bad as itcould it be, according to Energy Security Analysis Inc. (ESAI) inits March Natural Gas Stockwatch. With prices back in the $5 areathe question now becomes, where do we go from here?

The analyst firm said that it appears North American gas supplywill increase by a little more than 3% in 2001, with demandincreasing by a little less than 3%. ESAI said the key to where theprice level sits going forward is power generators, and the amountof gas they are going to want this summer. Citing the recentreactions of demand and supply to price, ESAI commented that thelikelihood of prices falling below $5, or even $4 in the comingmonths is on the rise.

The nation’s much-depleted gas storage system appears to be inthe clear after a string of months when a storage deficit seemedprobable. However, the ESAI warns that the next two weeks arecritical because storage is still at a historical low. The firmremains optimistic that storage can make it through the remainderof the winter because of the gas demand drop-off experienced amongindustrial customers. With prices so high the last few months, manyof the largest industrial natural gas users scaled back productioncapacity, or shut down completely to wait out the soaring gasprices.

“We think the winter storage 2000-2001 looks like it is going tobe adequate at this point,” said Mary Menino, manager of NorthAmerican natural gas for ESAI. “The reason for that is that certainparts of the weather picture have been warmer than we expected.”The second and more important thing is that there has really beena fall-off in industrial gas demand as a function of price. Thequestion going forward is at what price will that demand fromindustrial users come back? Is $5 low enough?”

Even though the firm predicts March will be significantly colderin every region than it was last year, production cutbacks byindustrials will provide for a slow withdrawal month. In ESAI’s AGAStorage Forecast, the company expects 227 Bcf to be withdrawn fromstorage in March, which is less than last year. Of course anychange in actual weather experienced could change this forecast.The ESAI said that if the volume of returned industrial demand was”significant,” then the spring storage injection rate could beslowed, making gas tight for the summer air conditioning period andthe following winter.

“I think that if we have a fairly large air-conditioning summerit is going to be very demanding in terms of gas,” said Menino. “Wedo expect the utility and the independent power demand to be reallykey this summer. Early indications are that California and theNorthwest are going to be short of hydropower again this year, sothat would put even more emphasis on gas.”

For the company’s six-month price forecast, ESAI expects theHenry Hub Spot price to hover from $4.95 to $5.45 from March toAugust this year. The firm forecasts it will hit its high of $5.45in July, and its low of $4.95 in August.

©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.