Continued production growth and new pipelines connecting producing areas to consumers have helped keep natural gas prices low, despite a 2.6% increase in demand this year, and market conditions going into the winter are generally positive, according to FERC’s Office of Enforcement (OE).

“Gas-fired electric generation is benefiting from the lower gas prices, raising expectations for continued demand growth from this sector in the upcoming winter,” according to a Winter 2011-12 Energy Market Assessment released by OE Thursday.

Natural gas prices this year have remained among the lowest in a decade, OE’s Omar Cabrales told the Federal Energy Regulatory Commission (FERC), and the average forward Henry Hub price for November through March is currently $3.87/MMBtu. “These price levels are due to record setting production, robust storage levels and pipeline projects that have allowed additional supplies to flow out of the production areas, helping moderate regional transportation constraints and get natural gas to markets,” Cabrales said.

FERC’s Office of Energy Projects estimates that 8.2 Bcf/d of pipeline capacity went into service in the first eight months of 2011, including El Paso Corp.’s Ruby Pipeline (see Daily GPI, July 29) and TransCanada Corp.’s Bison Pipeline (see Daily GPI, Jan. 19) in the West, and Florida Gas Transmission’s Phase VIII mainline expansion (see Daily GPI, April 4) in the Southeast.

“Access to new production and added natural gas transportation capacity has contributed to a trend towards the convergence of prices between regional markets,” Cabrales said. “During 2011 there were fewer incidences of spikes in basis between regional natural gas hubs and the Henry Hub benchmark price. This trend is expected to continue throughout the winter, as additional pipeline infrastructure comes into service and provides access to new low cost gas supplies.”

Forward prices for winter natural gas are significantly higher in the Northeast than they were last year, “but overall forward prices remain at moderate levels,” according to OE. In the rest of the country forward winter prices are relatively flat, except at the Northwest Sumas Hub, where lower demand for gas for power generation resulting from high hydropower output and the additional supply of Rockies gas via the Ruby pipeline has pushed prices 15% below 2010 levels.

A significant portion of the production growth seen in 2011 has come from the nation’s shale plays. “Shale gas now accounts for more than 25% of U.S. production, up from 5% in 2007,” Cabrales said.

Storage levels, which are an important indicator of the industry’s ability to meet winter demand, were 2% above the five year average as of Oct. 7 and are expected to end the injection season near or above the record set last year, according to OE. Injections have been strong since August. “At the current injection rates, natural gas in storage should be sufficient to meet winter demand,” Cabrales said.

The American Gas Association recently said that it believes natural gas prices for the 2011-2012 winter season will be similar to prices from last winter (see Daily GPI, Oct. 13a) and the Energy Information Administration in its Winter Fuels Outlook said it expects households heating with natural gas to spend 3% more than previous winter (see Daily GPI, Oct. 13b).

Winter 2011-2012 is expected to be somewhat less extreme than last year in the Northeast, but especially harsh temperatures and snowfall could plague the Midwest and Great Lakes region according to forecasters at AccuWeather.com (see Daily GPI, Oct. 6).

©Copyright 2011Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.