Natural Gas Summary from the Short-Term
Energy Outlook |
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Natural
Gas Summary from the Short-Term Energy Outlook: In the May 2003 Short-Term Energy Outlook,
EIA projected that natural gas wellhead prices will remain high
relative to historical levels. In February and March 2003, natural gas wellhead prices
were more than double last year’s levels.
Despite considerable declines posted in April 2003, wellhead prices
are expected to remain between 42 and 73 percent above last year’s level
through each of the remaining months of the refill season. This will push the average wellhead price
to roughly $5.00 per MMBtu in 2003, an increase of about 60 percent over
2002. This projection is based
in part on the expectation of lower volumes of underground gas in storage for
2003 compared with 2002. Levels of natural gas in underground storage remain low
one month into the injection season.
At the end of April, working gas in storage was roughly 789 Bcf, which is about 52
percent below end-of-April 2002 levels and 41 percent below the previous
5-year average. The exceptionally
large shortfall in natural gas storage relative to normal levels continues to
place unusually strong upward pressure on near-term gas prices because
companies need to obtain large amounts of natural gas to refill storage for
the next heating season, which will compete with other uses. Moreover, if abnormally warm weather
prevails this summer, the market demand may surge, particularly in the
Western and South Central United States, where natural gas is heavily used
for power generation. Such conditions
could cause a mid-year spike in prices to above $6 per MMBtu. With high natural gas
prices, natural gas demand is expected to fall by nearly 1 percent in
2003. Negative growth this year is
likely despite sharply higher weather-related demand during the first quarter
of 2003. Demand for natural gas this
summer is expected to fall by 9.2 percent from last summer’s level. This is largely due to summer weather
effects (in the power sector).
Assuming normal weather, cooling degree-days for the refill season
will be close to 10 percent below year-ago levels. Demand for natural gas to
refill working gas storage in 2003 will be larger than average, which means
that price volatility can be expected to continue in these tight market
conditions. Natural gas demand in
2004 is expected to rise as industrial demand recovers from its 2002-2003
lows. Dry gas
production is expected to increase by 1.4 percent in 2003. High natural gas prices and sharply higher
oil and natural gas field revenues are expected to drive a resurgence in
natural gas directed drilling activity this year following a downturn in
2002. Domestic production
growth should continue in 2004 but, given recent experience, the additional
drilling might result in increases of less than 2 percent. The prospects for
significant reductions in natural gas wellhead prices over the forecast
period from the current high levels could hinge on the productivity of the
expected upsurge in drilling in terms of expected output.
Note: Latest wellhead price from the Short-Term Energy Outlook
is based on preliminary data. Source: Energy Information Administration, Short-Term
Energy Outlook, May 2003. Need Help? |
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