EIA: Natural gas prices to improve in 2011

Natural gas production will decline and prices will increase in 2011, the US Energy Information Administration said in its latest Short-Term Energy and Summer Fuels Outlook.

Marilyn Radler
OGJ Senior Editor-Economics

HOUSTON, Apr. 6 -- Natural gas production will decline and prices will increase in 2011, the US Energy Information Administration said in its latest Short-Term Energy and Summer Fuels Outlook.

EIA calls for the Henry Hub spot price to average $4.44/MMbtu in 2010 and $5.33/MMbtu in 2011.

The Henry Hub spot price averaged $4.29/MMbtu in March, which was $1.03/MMbtu lower than the average spot price in February, and EIA expects prices to remain low for the next several months.

“With strong production and the absence of meaningful space-heating demand, lower-priced natural gas will once again compete with coal for a share of the baseload electricity supply—particularly in the spring and fall. Sustained low prices could reduce drilling activity over time,” EIA said.

The new 2010 price forecast reflects a $0.49/MMbtu increase over the 2009 average but is a downward revision from the $5.17/MMbtu projected in last month's outlook. EIA said that the new price forecast is lower primarily because of an average 2 bcfd upward revision to its 2010 domestic natural gas production forecast.

Gas demand, supply
EIA expects total gas consumption to increase by 1.9% to 63.8 bcfd this year and decline by 0.6% in 2011.

The new outlook for 2010 includes an upward revision to the forecast of electric power sector consumption and reflects EIA's expectation that lower natural gas prices relative to coal prices will increase the utilization of gas-fired generating facilities in the baseload power supply.

EIA's forecast for 2011 includes consumption declines among all consumers except the industrial sector, where demand, supported by continued economic growth, is projected to increase by 1.7% next year.

EIA expects total US marketed gas production to increase by 0.4 bcfd to 60.9 bcfd in 2010 and to decrease by 0.7 bcfd in 2011. US net imports of gas will decline this year as higher imports of LNG and lower pipeline exports are more than offset by a steep decline in pipeline imports due to declining Canadian gas production.

Oil, product prices
EIA projects that global oil consumption will grow by 1.5 million b/d this year and by 1.6 million b/d in 2011.

West Texas Intermediate prices will average above $81/bbl this summer, EIA said. For 2010, EIA sees WTI averaging $80.74/bbl, up 31% from a year earlier. And for 2011, the outlook calls for WTI to average $83.50/bbl.

During this summer season, motor gasoline consumption in the US will increase by 0.5% over last summer, when gasoline consumption was stimulated by the beginning of the economic recovery and a $1.37/gal decline in prices from the previous year.

But the boost to this year’s gasoline consumption from the economic recovery will be countered by higher gasoline prices as compared with a year earlier, EIA said.

Regular-grade gasoline pump prices in the US are projected to average $2.92/gal during this year’s driving season, up from an average of $2.44/gal last summer.

Diesel fuel prices, which averaged $2.46/gal last summer, will average $2.97/gal this summer, according to the EIA outlook.

Contact Marilyn Radler at marilynr@ogjonline.com.

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