Slide 17 of 17
Despite signs that domestic natural gas production has begun to turn around (the Texas Railroad Commission now reports year-to-date (through Sep.) gains in Texas gas production of 1.2 percent, compared to a 4.7-percent decline for the same months in 1999 versus 1998) the reality of the U.S. gas market is that supply responses have been too little, too late to prevent record-high spot prices and prospects for very high average prices this winter.
We now expect to see peak monthly spot wellhead prices this winter of over $6.00 per thousand cubic feet (mcf) (December). Last month we maintained confidence that conditions would improve enough to keep the $5.10 per mcf recorded in October as the peak for this heating season. With partial data available, a monthly average value of about $5.60 per mcf looks likely for November. Recently, concern about cold weather and low stocks pushed spot gas prices near $8 per mcf, indicating the extraordinary volatility in the current U.S. market.
The gas storage situation in the United States has not improved over the last few months, a sign that demand remains strong. At best we believe that the domestic system will enter the winter with storage at minimal levels, and that records for storage lows may be challenged throughout the heating season.