US agency says mild winter weather taking toll on heating fuels prices
By the OGJ Online Staff
WASHINGTON, DC, Feb. 7 -- The US Energy Information Administration reports that very mild winter weather conditions in the US have dealt a harsh blow to energy prices.
EIA, in its latest short-term outlook, said heating degree-days in January were 14-17% below normal (depending on the region) and below year-ago levels. It said that even if temperatures are normal for the next 2 months, heating degree-days for the first quarter will be 8.5% below the same period in 2001.
"For the entire winter heating season (the fourth quarter of 2001 through the first quarter of 2002), a return to normal for the time remaining will still imply a year-over-year decline of about 17% in heating degree days. Despite efforts by refiners to adjust production rates to deal with low profitability and excess stocks (due in part to the weak heating demand conditions), higher-than-expected domestic product inventories (especially for distillate fuel) continue to materialize. Wholesale prices for heating fuels, including No. 2 heating oil, propane, and natural gas, have deteriorated in recent weeks, making more significant the year-to-year decline in average heating fuel prices that we have been observing all season."
EIA said it estimates that due to lower prices and warmer weather, winter season gas bills per household in the Midwest will be 42% lower than in the 2000-01 season. Oil heating costs for Northeast homeowners will drop 36% while propane heating costs will fall 37% in the Midwest.
"Because of the lack of heating demand, the weak economy, and the resultant excess storage levels for natural gas this winter, natural gas market fundamentals are obviously not favorable for strong price performance in the near term.
"Average daily spot prices at the Henry Hub have slipped below $2/MMbtu on more than one occasion since November, most recently on Jan. 29. Contrast that price level with the Henry Hub spot average of about $8.30 reported for January of last year. Still, the surprise (given the high storage levels and weak demand fundamentals) has been that, for much of the heating season to date (mid-December through mid-January), Henry Hub spot prices have remained in the $2.30-3/MMbtu range.
"Whatever the explanation, lower prices have reappeared in the spot gas market. A current view of natural gas prices for most of the rest of 2002 centers near (or perhaps slightly below) the $2/MMbtu level. A modest recovery in prices by late 2002 or early 2003 depends largely upon the speed of recovery in the US economy and the net effect on gas productive capacity of the slowdown in US drilling."
EIA said gas-directed drilling in the US has fallen to levels not seen since July 2000. "We believe that room for some continued declines exists over the next several months because, on balance, aggregate lease revenues for oil and gas producers aren't likely to turn upward again until mid-summer. This will be particularly true if oil prices remain flat or weaken instead of increasing gradually as expected."
EIA said that for the year, assuming normal weather and barring any major supply disruptions, the annual average natural gas price is projected to be just under $1.90/MMcfd, or less than half of last year's price.
"Weak industrial demand and excess underground storage levels should keep a lid on spot prices until next fall. For 2003, we project that, as economic growth accelerates and as world oil prices rise, natural gas wellhead prices will rise accordingly, gaining about 50¢/Mcf compared to 2002."