NGSA: Hurricanes hit already tight US gas supplies

Sept. 28, 2005
Hurricanes Katrina and Rita aggravated an already tightening natural gas supply situation, increasing prospects for higher prices this heating season, the Natural Gas Supply Association said.

Nick Snow
Washington Correspondent

WASHINGTON, DC, Sept. 28 -- Hurricanes Katrina and Rita aggravated an already tightening natural gas supply situation, increasing prospects for higher prices this heating season, the Natural Gas Supply Association said Wednesday as it released its fifth annual winter demand outlook.

"Although the market is compensating for the hurricanes' impact, much remains to be learned about the extent of the damage," NGSA Chairman Joseph A. Blount told reporters at a Washington briefing. "If there's one thing to be learned from this hurricane season, it's the importance of geographically diverse supplies."

In its forecast, NGSA said gas demand growth appears to be slowing down but still should increase by 2.3% to an average 75.8 bcfd this winter. That compares to a 0.7% drop to an average 74.1 bcfd a year earlier.

Electric utilities were the primary growth sector last year as they added 29.5 Gw of gas-fired generating capacity in 2004, according to NGSA. The group will be less of a factor in 2005 since the amount of its anticipated new gas-fired capacity will fall nearly 60% to 11.9 Gw.

Instead, said Blount, NGSA anticipates residential and commercial demand will grow the most during the 2005-06 heating season. "Industrial demand is not expected to grow as much due to higher natural gas prices," he said.

Several industrial customers could switch to No. 6 (heavy) oil "unless oil prices leapfrog, at which point many would switch back," Blount said.

"The utilities tell us about one quarter of their gas-fired plants can switch to residual fuel oil, but that can't be done on a dime," added NGSA Public Affairs Director Mark Stultz.

Slower growth
NGSA's forecast assumes slower US economic growth with a 3.4% higher gross domestic product this winter, down from a 3.7% increase in the 2004-05 heating season; a drop in unemployment to 5% from 5.3% year-to-year; a 2.9% rise in manufacturing, compared with 4.9% a year earlier; and a 3.9% increase in the consumer price index, up from 3.2% in the 2004-05 period.

Prewinter inventories total 3,200 bcf—93 bcf less than a year ago, according to NGSA. Warmer summer temperatures increase cooling demand, reducing injections, although inventories appear adequate for the coming heating season, Blount said.

Emphasizing that the trade association does not forecast prices, he added, "Overall, NGSA thinks high storage costs, driven by hurricane interruptions, will significantly drive upward pressure on prices."

Prior to Hurricane Katrina, NGSA said it expected domestic gas production to increase slightly as a result of a large number of successful onshore well completions in unconventional plays. It added that Energy and Environmental Analysis Inc., the Arlington, Va., consulting firm it uses to develop its forecast, now expects significantly higher rig counts and completion totals during 2005 to keep production close to 49 bcfd this winter because of the storm.

"We would like to see further access to areas that aren't being tapped, whether in the Rocky Mountains or on the Outer Continental Shelf, and would appreciate any efforts by Congress and the administration in that regard," Blount said.

Hurricane impacts are significantly bigger this year, he added. In 2004, damage from Hurricane Ivan resulted in 174 bcf of lost production from the Gulf of Mexico. Production losses from Hurricanes Katrina and Rita, which so far total 181 bcf, are expected to reach 402 bcf by the end of March 2006, he said.

While wells in the gulf produce about 20% of the country's total gas consumed, Blount warned that hurricanes in the region could have an increasing impact. "Several weeks remain in this year's hurricane season," he said, "and the National Hurricane Center has said that more activity is possible due to changes in the regularly occurring 25 to 40-year cycle."

Contact Nick Snow at [email protected].