Natural gas demand this winter should be about 1.4 Bcf/d (1.8%) lower than demand last winter but 3.8 Bcf/d higher than demand during the mild winter two years ago, according to Arlington, VA-based consulting firm Energy Ventures Analysis Inc. (EVA). However, domestic gas production should decline about 1% this year, according to Energy and Environmental Analysis Inc. (EEA). Both firms conducted studies for the Natural Gas Supply Association’s (NGSA) Natural Gas Winter Outlook.

Gas demand last winter rose 7.2% to 74.5 Bcf/d from the prior winter, according to the EVA study. EVA expects a 205 Bcf drop in demand this winter to 75.9 Bcf/d. Included in that total is a 147 Bcf drop in residential sector demand due to expectations for more normal weather conditions, particularly in the East, which was colder than normal last winter.

“As for other markets, there is expected to be fuel switching from natural gas to oil within the electric sector and additional, albeit modest, demand destruction within the industrial sector, as a result of the elevated prices for natural gas,” EVA noted (see Daily GPI, Sept. 16). Electricity sector demand is expected to increase 25 Bcf compared to last winter while industrial demand is expected to fall 53 Bcf, EVA said.

According to the EVA study, the latest weather forecasts are calling for a normal winter in the East and a somewhat mild winter in the West. Last winter it was colder than normal in the East and mild in the West. “As a result, for this coming winter, it is expected that the weather on average will be much closer to normal which will result in this season’s natural gas demand for the residential and commercial sectors being in between demand levels for the last two years,” EVA concluded.

On the supply end of the equation, EEA sees the industry trying harder to grow production but still falling a little short of what’s required. After jumping significantly earlier in the year, the rise in the gas rig count started to slow down this summer. Oil and gas permitting by state agencies also soared early in the year but then moderated. In comparison, gas well completions moved sharply higher this year after falling significantly in 2002. Well completions are expected to reach 19,600 this year, 2,500 more than in 2002, but still below levels in 2001.

“The current forecast for this winter is for production to increase gradually from the 50.6 Bcf/d average in November to 50.7 Bcf/d in March,” EEA said. “Thus the winter production rate will be basically even with last year. On an annual basis, 2003 is expected to experience an overall dry gas production decline of 1% relative to 2002. By contrast 2002 saw a 2.5% production decline relative to 2001.” EEA expect production to grow 0.4% next year. Growing production areas include the deepwater Gulf of Mexico, Northern Rockies and Northeast Texas and possibly the Texas Gulf Coast. Regions with flat to declining production include the Louisiana Gulf Coast, the Permian Basin and the southern Rockies.

EEA expects imports of Canadian gas to fall about 5% this winter to about 9.49 Bcf/d from 9.99 Bcf/d last winter. Imports in winter 2001-2002 were 9.52 Bcf/d. However, net exports to Mexico are expected to fall slightly this winter and winter imports of liquefied natural gas (LNG) are expected to more than double to 1.54 Bcf/d from 760 MMcf/d last winter.

In total, NGSA said earlier this week it expects no significant change in supply and demand dynamics this winter compared to last winter unless, of course, there is a change in the weather forecast. In short, NGSA, which represents the nation’s largest natural gas producers, is expecting a continuation of the tight supply-demand balance and a volatile gas marketplace (see Daily GPI, Oct. 2). EEA’s outlook for Hery Hub prices is an average of $4.57 in the fourth quarter and $5.25/MMBtu in the first quarter of 2004.

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