Due to the harsh winter weather in February and early March that has led to significant withdrawals from natural gas storage, the Energy Information Administration (EIA) in its Short-Term Energy Outlook for March has raised its projections for gas spot prices this year and next.

The agency now projects that the Henry Hub gas prices will average $7.58/Mcf this year, up from last month’s forecast of $7.10/Mcf, and will climb to an average of $7.86/Mcf for 2008. The EIA last month forecast an average spot price of $7.60/Mcf for 2008 (see Daily GPI, Feb. 7).

The major factor influencing price projections has been the significant turnaround in the storage situation since February. Last month the EIA said working gas in storage was expected to finish out the 2006-2007 heating season at the highest level since 1991. But that was before the cold winter weather struck much of the country.

The agency now reports that a record amount of natural gas was withdrawn from storage in February. As a result, after 13 consecutive months of year-over-year increases, February gas stocks dropped below the year-ago level, the EIA said in its energy outlook, which was released Tuesday. It noted that stocks currently are 263 Bcf below the level at this time last year, but are still 179 Bcf above the five-year average.

Along with the frigid weather, the EIA’s projections for U.S. heating fuel expenditures this winter rose to $898 compared to the $862 that it estimated last month. Nevertheless, the amount still represents a decline from $948 for last winter.

Total natural gas consumption for this year and next is projected to increase by 2.9% to 22.49 Tcf and by 1.8% to 22.90 Tcf, respectively, after falling by 1.7% in 2006, according to the EIA. It expects to see increases in all three consuming sectors: residential (10.8%), commercial (6.3%) and industrial (1.9%) this year, to be followed by small changes in 2008.

On the supply side, the EIA sees domestic dry natural gas production rising by 2.4% to 18.93 Tcf this year as drilling for gas continues at historically high levels. Net imports of natural gas are projected to drop for the second consecutive year, but the decline will be smaller this year (2%) than was observed last year (5%), the agency said.

Gas pipeline imports from Canada are likely to fall by about 180 Bcf this year. However, the EIA still expects total liquefied natural Gas (LNG) imports to increase from their 2006 level of 580 Bcf to 770 Bcf this year. It noted that LNG import projections remain strong for 2008 as well, expanding by 39% and eclipsing the 1 Tcf mark.

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