The latest seasonal outlook from the Natural Gas Supply Association (NGSA) predicts that the wholesale gas market will be similar to that of last year. The effect on prices of demand increases driven by an improving economy is likely to be offset by growing supply, the trade group said.

“This summer is shaping up to be a repeat of last summer, which is good news for natural gas consumers,” said NGSA President R. Skip Horvath.

“Our wild cards are summer hurricane activity and the strength of the manufacturing sector’s rally.”

The NGSA analysis examined demand and supply factors and projected their impact on gas prices for the coming summer, then further identified emerging trends to watch.

Assessing the economy, weather, demand, storage and production, NGSA said improvement in the economy is the single factor it expects to place upward pressure on gas prices compared to last summer. The other factors are expected to be similar to those of last summer. The association said that when combined, the five key factors will have an overall neutral impact on gas prices this summer compared to the summer of 2009.

“We expect the improving economy and rebounding industrial sector to boost demand for natural gas this summer, but that boost will be offset by more production, similar weather and comparable storage inventories,” said Horvath.

NGSA pointed to a slightly warmer than the 30-year average summer weather forecast from the National Oceanic and Atmospheric Administration, which is similar to last summer’s.

The association also looked at expected demand from electric, industrial, commercial and residential customers this summer and predicted that overall levels of demand would be 2% higher than last summer, a sign of economic recovery but not quite sufficient to place pressure on prices.

“We expect industrial demand to continue to steadily strengthen this summer, spurred on by growth in the chemical and metal manufacturing sectors, which traditionally are leading indicators of natural gas demand. Industrial demand for natural gas is nearing its pre-recession levels,” Horvath said.

Although it won’t impact overall demand by a significant amount, NGSA said one sector to watch is power generation, where it predicts that power generators will switch to dispatching natural gas-fired plants rather than those fired by coal due to low natural gas prices, in a summer repeat of 2009’s coal-to-gas switching. Switching from coal to natural gas averaged about 2.25 Bcf/d during the summer of 2009 and is projected to average 1.6 Bcf/d this summer, NGSA said.

NGSA said more natural gas is expected to go into storage this summer in contrast to last; however, the amounts are roughly comparable and overall should be neutral for prices.

“…[S]torage is big and getting bigger in its ability to boost market responsiveness,” Horvath said. “Between 2006 and 2010 a record amount of storage capacity was added and more than half of that was high-deliverability salt cavern storage…[N]ewer storage facilities are being sited nearer to customers, enhancing the ability of suppliers to efficiently respond to changes in demand from the key electric and industrial growth markets.”

NGSA relied on Energy Ventures Analysis and the Energy Information Administration’s projections of gas production, estimating that overall production would be 58.1 Bcf/d this summer, slightly more than last summer’s average daily production of 57.2 Bcf/d but not enough to influence prices.

“Natural gas rig counts have increased to almost 970 and LNG [liquefied natural gas] imports are up because of good LNG storage capacity in the U.S.,” Horvath said.

“The industry’s supply response continues to be strong. Looking beyond this summer, there are encouraging signs for the natural gas industry, with growing demand and expanding natural gas infrastructure and production.”

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