NGSA sees little upward gas-price pressure this winter

High storage levels, steady drilling rates, and expected warmer winter temperatures suggest minimal upward pressure on gas prices during the coming US heating season, NGSA said in its annual forecast.

Nick Snow
Washington Correspondent

WASHINGTON, DC, Oct. 1 -- High storage levels, steady drilling rates, and expected warmer-than-normal winter temperatures suggest there will be minimal upward pressure on natural gas prices during the coming US heating season, the Natural Gas Supply Association said in its annual forecast.

But the tight markets of the past several years are expected to continue and could easily be thrown off balance by any of several variables, outgoing NGSA Pres. Chris Conway of ConocoPhillips told reporters.

"We've been in a tight market for a number of years, and we believe that has become an accepted situation. But a tight market still can be knocked off balance fairly easily," he warned.

Weather risks, such as late-season hurricanes and cold snaps, are the biggest variable, but markets also can be affected by conservation and additional transmission capacity, according to Conway. Additional pipelines as well as high drilling rates are responses to high gas prices.

NGSA uses five pressure points—weather, the general economy, demand, storage, and supply—to develop its annual heating-season forecast. In its predictions for the 2006-07 period, it said it was correct in the last three instances but overestimated weather impacts and forecast a neutral economy instead of the decline that occurred.

Pressure point specifics
The association uses information from other sources and outside consultants to develop its forecast. It said that, while the National Oceanic and Atmospheric Administration expects the coming heating season to again be warmer-than-normal overall, NOAA's forecast calls for temperatures to be somewhat lower overall than a year earlier (2% vs. 7% warmer-than-normal).

NGSA said gas demand probably won't change much year-to-year as the general US economy continues the low growth that emerged during the 2006-07 heating season. It said consulting firm Global Insight predicts 2.2% gross domestic product growth (up slightly from the 2.1% growth a year earlier), an average 4.9% unemployment rate (up from 4.5%), 2.6% manufacturing growth (down slightly from 2.8%) and 2.8% growth in the US Department of Labor's consumer price index (up from 2.2% in the 2006-07 period).

Using information developed by another consulting firm, Energy Ventures Analysis Inc., NGSA predicted that average gas demand the coming 5-month heating season will rise to 74.2 bcfd from 72.9 bcfd in the comparable period a year earlier.

Residential users will replace electricity as the primary growth sector as annual generating capacity additions fall to 9.9 from 6.2 Gw, it indicated. "In the past few years, there have been fairly significant additions of gas-fired generation. I think we're at the tail end of that growth," Conway said.

That situation could change if more electric utilities cancel plans for coal-fired power plants. "NGSA believes the country needs all sources of electrical energy—gas, coal, and nuclear included. I can't say I know what's going to happen with coal, but I do see natural gas playing a major role, particularly in trying to reduce greenhouse gas emissions," he said.

NGSA said the US Energy Information Administration estimates that gas storage inventories at the end of the 2007 injection season will be a record 3.52 tcf, compared with 3.445 tcf a year earlier. Energy and Environmental Analysis Inc. (EEA), an ICF International company, forecasts that an estimated 104 bcf of additional storage capacity will become available during the 2007-08 period vs. 24 bcf a year earlier.

Production outlook
NGSA said EEA expects annual well completions to grow to 30,500 from 29,000 last year, the annual average rig count to increase to 1,485 from 1,372, and average winter gas production to rise to 51.3 bcfd from 50.7 bcfd.

"Producers are continuing to aggressively invest in this stable price environment. At the same time, it's important to remember that per well production rates continue to decline and that more wells have to be drilled simply to keep production steady," Conway said.

The import outlook is mixed, with purchases of gas from Canada expected to fall to an average 8.5 bcfd from 7.8 bcfd last year and LNG imports rising to 2 bcfd from 1.9 bcfd, according to NGSA.

Overall, said Conway, "We're continuing to see pressures on costs. It's becoming more expensive to drill wells, build LNG import terminals, and construct pipelines and storage facilities. Unfortunately, at the moment, the tone in Congress seems to be to penalize the industry instead of trying to work with it to develop new supply sources."

The US economy will require additional and more-diverse energy supplies, he continued. "As greenhouse gas legislation is developed, it will be important to recognize growing pressure on natural gas supplies and address access questions," Conway said.

Contact Nick Snow at nsnow@cox.net.

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