EIA: Average Natural Gas Price In 2002 Seen Around $2/MMBtu
13:19 GMT-05:00 Tuesday, January 08, 2002
HOUSTON -(Dow Jones)- With an excess of almost 1.1 trillion cubic feet of natural gas in storage, large price gains are seen as unlikely this winter, and prices will average $2 a million British thermal units, according to the Energy Information Administration's January 2002 short-term outlook.
The lower prices reinforce the expectation that gas production might fall in 2002, since incremental domestic supply won't be needed as long as storage returns to more-normal levels by year-end, the EIA said.
EIA is the statistical wing of the U.S. Department of Energy.
Working gas in storage at the end of December totaled 2.858 trillion cubic feet, well above last year and well above the five-year seasonal range. With storage levels up, spot prices are down. In December, spot gas prices averaged $ 2.47/MMBtu, compared with an average $8.36/MMBtu in December 2000.
Assuming normal weather and barring supply disruptions, gas prices in 2002 are projected to be about $2/MMBtu - less than half last year's price - as sluggish industrial demand and robust underground storage levels keep a lid on prices.
For 2003, the agency projects that as the economy recovers, world oil prices increase, and the negative effects of sharply reduced drilling become apparent, gas wellhead prices will respond to upward pressure, increasing an average 60 cents a million British thermal units compared with 2002.
A sharp downturn in domestic gas drilling rates since July probably won't reduce gas production capacity enough to prevent relatively low prices this winter and into 2002, the EIA said. But those factors could have implications for market pricing by 2003. Robust demand growth - up 1.2 trillion cubic feet, or 5.5% - will probably return gas inventories to normal.
Pressure on domestic wellhead prices to remain near $2/MMBtu will be strong through much of 2002. In 2003, the EIA said an expected rebound in economic growth should result in further demand growth of about 2% and somewhat higher spot gas prices, averaging $2.70/MMBtu.
For 2001, gas demand is estimated to have fallen 5.3%. Although residential demand is estimated to have declined for 2001 based on weak heating-related demand in the fourth quarter, the overall decline in demand was mainly the result of a downturn in gas-intensive industrial production.
Gas use for power generation, however, increased an estimated 4.1% in 2001, entirely due to increased use by nonutility generators.
Heating season temperatures for most of the fourth quarter were seen as above- normal, causing delayed withdrawals from storage.
If normal temperatures result the rest of the winter, heating degree-days for the 2001-2002 winter would be about 14% lower than last year. As a consequence, winter demand for gas is projected to fall 7.3%, compared with growth of 6.4% last winter.
Spot gas prices, which averaged $6.48/MMBtu last winter, are expected to only be $2.20/MMBtu, about 66% lower.
Industrial gas demand, under downward pressure all through 2001, is projected to rise in first quarter 2002 as a result of a return to gas demand not seen last winter because of high prices.
The EIA expects domestic gas production to fall about 400 billion cubic feet, or 2.1%, in 2002, and to recover to 2001 levels by 2003. Production increased about 1.7% in 2001.
Net imports of gas are projected to rise slightly in 2002 but should exhibit solid growth of about 10% in 2003 as import capacity expands.
-By John Edmiston; Dow Jones Newswires;713-547-9209 john.edmiston@dowjones.com
(This story was originally published by Dow Jones Newswires)
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