This summary is based on the most recent Short-Term Energy Outlook released May 6, 2002.

EIA projects that natural gas wellhead prices will average $2.73 per MMBtu in 2002 compared with about $4.00 per MMBtu last year (Short-Term Energy Outlook, May 2002). This projection reflects the sharp increases in spot and near-term futures prices in recent weeks. Average wellhead prices have risen 38 percent from $2.14 per MMBtu in February to an estimated $2.96 in April. Spot prices at the Henry Hub have increased to an even greater extent, rising more than $1.50 per MMBtu since early February. The upward price trend reflects a number of influences, such as unusual weather patterns that have led to increased gas consumption, and tensions in the Middle East and rising crude oil prices. Other factors contributing to the recent price surge include the strengthening economy, the increased capacity and planned new capacity of gas-burning power plants, and concerns about the decline in gas-directed drilling.

Natural gas production is projected to fall by almost 2 percent in 2002 compared with the 2001 level. Weak demand and falling prices during the last half of 2001 and most of this past winter have reduced production and resource development incentive in natural gas since last summer. However, the recent price increases seem to be stimulating supply activity. Although natural gas drilling activity has fallen rather steadily since mid 2001, gas-directed drilling rates may have reached the bottom of the current drilling cycle. Baker Hughes has reported drilling increases each week since the recent low of 591 posted for the week of April 5, 2002, which amounts to an 8 percent increase in the past 4 weeks. Also, aggregate lease revenues from domestic oil and gas production, which are a strong determinant of industry cash flow, are expected to move up this year, which in turn would likely lead to an upward trend in gas drilling levels. Current supplies appear to be adequate, given the relatively large volumes of working gas in underground storage at the end of April 2002, relative to both last year and the 5-year average. Storage is expected to remain at above average levels throughout the refill season (April-October).

Summer natural gas demand is expected to be 4.4 percent higher than last summers level, mainly because of rising demand for natural gas in the industrial and electricity generating sectors and this years lower prices. Natural gas demand for the entire year 2002 is projected to increase by 2.8 percent over the level in 2001.

Please note that the storage numbers in the table below are those from the STEO released on May 6 and consequently were prepared before the availability of the EIA weekly storage estimates released on May 9. The STEO estimates thus are based on a prior estimation system. This was a one-time separation of data systems related to the beginning of the new confidential survey. As a result, some differences between the weekly estimates of working gas and the STEO values are present.

File last modified: 05/23/2002