The Henry Hub natural gas spot price could peak at $8.22/Mcf in January but will likely average $7.78/Mcf in 2008, the Energy Information Administration (EIA) said Tuesday.
In its Short Term Energy Outlook for December, EIA said it expects prices will rise only moderately despite historically high prices for major petroleum products due to projected crude oil prices (global oil markets will likely remain tight and West Texas Intermediate crude oil prices will likely exceed $80/barrel over the next year). The high level of storage going into the winter — working natural gas in storage reached 3.44 tcf at the end of November — and limited remaining fuel switching capability has insulated to some extent the natural gas market from the impact of recent price increases in the petroleum markets, EIA said.
The Henry Hub natural gas spot price is expected to average about $7.21/Mcf in 2007 and $7.78/Mcf in 2008, hitting a winter peak of $8.22/Mcf in January, according to EIA. The average household natural gas expenditure is expected to increase about 7% over last winter.
Total natural gas consumption is expected to increase by 5% in 2007, largely driven by increases in the residential, commercial, and electric power sectors, and an expected return to near-normal weather in 2008 is expected to increase total consumption by 1.1%, EIA said. Even though consumption of natural gas in the industrial sector is projected to decline by 0.7% in 2007, the weaker U.S. dollar and global demand for natural-gas-intensive goods produced domestically are expected to contribute to a 0.8% increase in industrial sector consumption in 2008, according to EIA.
New deepwater supply infrastructure in the Gulf of Mexico (GOM) and ongoing efforts to develop unconventional reserves prompted EIA to predict an increase in GOM and Lower 48 production by 5.1% and 1%, respectively in 2008. Total U.S. marketed natural gas production is expected to rise by 2.1% this year and by 1.6% next year.
Liquefied natural gas (LNG) imports are expected to reach about 790 Bcf in 2007, a 35% increase over 2006, and about 940 Bcf in 2008. The expansion of global liquefaction capacity is expected to boost LNG shipments to the United States next year, but the risk of project delays and production shortfalls, as well as negative price differentials between the U.S. market and other LNG-consuming countries, could temper the number of spot cargoes directed to U.S. ports next year, according to EIA.
Residential heating oil prices are projected to average $3.23 per gallon this heating season, a 30% increase from last year, while motor gasoline and diesel prices are projected to average more than $3 per gallon in 2008, with gasoline prices peaking at more than $3.40 per gallon in the spring.
Residential electricity prices are also expected to increase moderately, up just 1.7% in 2008 after a 2.1% increase in 2007. A return to near-normal temperatures next year should bring a 12% reduction in cooling degree days and keep residential electricity sales growth relatively flat, up just 0.2%, EIA said. Total electricity consumption in 2007 was projected to increase by 1.9% over last year.
EIA sees tougher times ahead for coal. Electric power-sector coal consumption, which accounts for more than 90% of total U.S. coal consumption, is expected to grow by 2.2% this year, but slow growth in electricity consumption, combined with projected increases in gas-fired and hydroelectric generation, will lead to a 0.5% decline in 2008, according to the report. U.S. coal production, which increased by 2.8% in 2006, is expected to fall 1% in 2007 and another 1.7% next year.
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