A senior economist at the DC Public Service Commission (PSC) warned in a special assessment last week that expensive stored gas this summer probably will mean much higher gas prices for consumers this winter. In addition, the summer and the hurricane season may have more surprises in store.

“Although storage injections have not been as pricey as we feared early on, the summer is half over and another 1 Tcf still must get into storage by Nov. 1, 2003, right as we pass through the heart of the hurricane season,” Jeffrey V. Conopask, senior economist with the PSC’s Office of Technical and Regulatory Analysis noted in a Wholesale Natural Gas Market Assessment. He said OTRA expects prices to remain firm around at least the $5.00/MMBtu level on average, which is still a 10% drop from earlier forecasts

“In our view, OTRA’s forecast for next winter is reasonably safe as long as we do not start injecting even more expensive (by historical standards) natural gas due to a late summer heat spell or endure a very active hurricane season in the Gulf. So far, we are safe on both counts, but the season is only half over.”

Conopask added that the economy has “taken a decidedly bullish turn as many indices are indicating that the economy is strengthening… Evidence continues to build that we have turned the corner,” he said. “For example, solid evidence is emerging of a major upturn in industrial production. That occurrence also may mean increased natural gas usage, depending on the price. Rising wholesale prices still could be a damper on that upturn, however. This is a double-edged sword, since more demand pressure will push prices up in the short run.”

On the production front, Conopask said exploration firms “continue to have good reason to invest in new drilling prospects to add to our supply.” Despite the ramp-up in drilling activity, OTRA still believes other sources of supply will be needed and are most likely liquefied natural gas (LNG) capacity additions given forecasted demand in the longer term.

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