EIA: Storage Surplus, Hurricane-Free Season Equal Low Winter Gas Prices
Record natural gas storage levels and the absence of any major hurricanes so far this year have set the stage for lower prices as consumers head into the winter heating season, the Energy Information Administration (EIA) said Tuesday.
"Working gas in storage at the start of the winter heating season (Nov. 1) is expected to be about 3,540 Bcf, still about 360 Bcf above the five-year average. This is close to EIA's estimated maximum working gas storage capacity of about 3,600 Bcf, which should put downward pressure on natural gas prices, at least until cold weather sets in and inventories begin to drop," the EIA said in its Winter Fuels Outlook. "Natural gas prices this winter are expected to be significantly lower than last winter."
It projects working gas inventories will end the winter season (March 31, 2007) at about 1,380 Bcf, 310 Bcf below the level that existed at the end of the 2005-2006 winter heating season, but still about 320 Bcf above the average of the last five years.
On average, the EIA said it expects U.S. households heating primarily with natural gas to spend about $119, or 13%, less this winter in fuel expenditures compared to last winter. This contrasts with an anticipated $91 increase this winter for households heated with heating oil, a $58 hike for households heated with electricity, and a $15 drop for propane-heated households. The EIA noted that residential gas prices, which were hardest hit by last year's twin hurricanes, are expected to average $12.23/Mcf this winter, down 16.4% from $14.64/Mcf a year ago.
The National Oceanic Atmospheric Administration predicts that the upcoming winter will be cooler than last year, but still warmer than normal. As a result, the EIA projects that the average household consumption of natural gas this winter will rise 4.7% to 67.6 Mcf from 64.5 Mcf last year. It estimates that the typical gas-heated household will spend an average of $826 this winter, down from $945 last winter. Compared to the average winter bills that are expected for the other major heating fuels -- heating oil ($1,522), propane ($1,265) and electricity ($839), natural gas is seen as the most economical this winter.
Gas-heated households in the Northeast will see see the highest winter bills ($1,117), while households in the South not surprisingly will experience the lowest winter gas bills ($543), according to the EIA. But the projected household heating bills in both regions still will be lower than what they were in the 2005-2006 heating season, the agency said.
Bill Cooper, executive director of the Center for Liquefied Natural Gas, said the the lower anticipated winter prices were not surprising. "We had an unusually mild winter last year, which allowed us to put high amounts of natural gas in storage, and we're expected to have a warmer than average winter this year. It's not really surprising that prices are low. But to rely on weather to be the mitigator of our supply and demand is a recipe for disaster." He noted that more LNG imports were needed to close the U.S. gas supply-demand gap.
The favorable winter price outlook for residential customers mirrored to some degree the falling Henry Hub natural gas spot prices, the EIA said. The agency again revised downward its projections for spot gas prices in 2006 and 2007. It now estimates that the average spot price this year will be $6.90/Mcf, compared to its previous estimate of $7.51/Mcf for the year, and it sees the 2007 spot price averaging $7.53/Mcf, down from its prior estimate of $8.30/Mcf. Spot gas prices averaged $8.86/Mcf in 2005.
The EIA forecasts that the average spot price this month will be $5.40/Mcf, compared to the post-hurricane price of $14 last October.
Gas consumption for the year is expected to drop by 1.1% to 21.68 Tcf from 21.93 Tcf in 2005 primarily due to the warmer than average weather in January of this year, the EIA said. It sees consumption rebounding in 2007 to 22.32 Tcf. "Relatively weak heating-related demand during the first quarter of 2006 is the primary cause of the 7.5% decline in average annual residential consumption from 2005. Consumption in the industrial sector in 2006, on the other hand, is expected to be comparable to the 2005 level because a year-over-year decrease in the first half of the year, due largely to hurricane damage, is offset by a year-over-year increase during the second half of the year."
The EIA anticipates dry natural gas production will rise this year by 0.8% to 18.39 Tcf and increase again next year to 18.54 Tcf due in large part to the restored production capacity in the Gulf of Mexico following last year's hurricanes. Meanwhile, total net imports of natural gas, including both pipeline and LNG, are expected to show a 4-5% decline to 3.44 Tcf this year from 3.60 Tcf a year ago, the agency said.
"The drop in net imports is the result of a decrease in the amount of Canadian production available for export to the United States. Currently, total LNG imports for 2006 are expected to be 650 Bcf compared to 630 Bcf in 2005. LNG imports are projected to total 920 Bcf in 2007. Robust expectations of LNG import growth of 41% in 2007 are largely due to rising incremental supplies from Africa -- Algeria, Nigeria, Libya and Egypt in particular," the EIA noted.
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