Despite the warmer weather in key consuming regions and the recent drop in wholesale prices, the Energy Information Administration is still projecting that consumers will pay substantially more this winter for their heating needs than they did last winter. In fact, expected increases in winter expenditures for natural gas-heated households were raised slightly to 10% compared to projections in last month’s outlook.

In comparison, heating oil expenditures by typical Northeastern households are expected to average 30% above last winter’s levels, with residential fuel oil prices averaging $1.82 per gallon for the October-to-March period. Expenditures for propane-heated households are expected to increase about 20%, EIA said.

The outlook for natural gas consumers is improving somewhat but the overall tight supply-demand picture remains. Henry Hub prices averaged about $6.32/Mcf in November and $6.77/Mcf in December. However, the recent unusually mild winter weather in the Northeast reduced heating demand, which in turn lowered spot prices for natural gas. Between Dec. 20 and Jan. 3, the price at the Henry Hub fell sharply from $7.35/Mcf to $5.70/Mcf, EIA said.

That trend is likely to continue in the short-term given the 2,698 Bcf of gas in storage at the end of December. Storage levels at that point were 5% higher than one year earlier and 12% higher than the five-year average.

“With the heating season now more than half over and ample storage, natural gas prices are likely to ease over the next several months,” EIA said.

The long-term trends, however, remain in place. Henry Hub prices are still expected to average $5.77/Mcf in 2005 and $5.95 in 2006 as the availability of natural gas is expected to tighten due to demand rising more rapidly than supply.

“Moderate improvement in the supply picture” is expected because of increases in liquefied natural gas imports, restrained export growth, and carryover from the robust storage levels. Domestic natural gas production also is projected to increase by 1.7% from 2004 levels due to high gas-directed drilling rates and partly due to continued recovery in the Gulf of Mexico from the effects of Hurricane Ivan.

However, natural gas demand is projected to increase by 3% in 2005 because of economic growth, EIA said. The projection on demand growth is down from the 3.7% increase projected in last month’s Short Term Energy Outlook, but supply projections also are down.

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