EIA forecasts record gas storage levels as heating season begins

US natural gas inventories are expected to reach a record peak of 3.85 tcf when storage injections end on Oct. 31, the US Energy Information Administration said in its latest short-term energy outlook.

Nick Snow
OGJ Washington Editor

WASHINGTON, DC, Oct. 6 -- US natural gas inventories are expected to reach a record peak of 3.85 tcf when storage injections end on Oct. 31, the US Energy Information Administration said in its latest short-term energy outlook.

Nearly 3.59 tcf was in storage on Sept. 25, 481 bcf above the 2004-08 5-year average and 491 bcf above the level during the same week in 2008, EIA said Oct. 6 in its new forecast. The projected Oct. 31 level would be about 285 bcf above the previous 3.565 bcf record reported for the end of October 2007, it said.

Households heating with gas can expect to spend an average of $105, or 12%, less this winter as a result, EIA said. The decline represents an 11% decrease in prices and a 1% decrease in consumption, it indicated.

The Henry Hub spot gas price averaged $3.06/Mcf in September, 17¢/Mcf below August’s average, the forecast said. “EIA expects prices to remain low through October, then begin to increase as space heating demand picks up this winter and economic conditions improve,” it said. “Prices are expected to increase in 2010 but, even with a projected winter storage withdrawal greater than the 5-year average, end-of-March inventories still will be the highest recorded since March of 1991.”

One day earlier, the American Gas Association said consumers could expect lower average bills this winter because of plentiful supplies and lower wellhead prices. “With natural gas storage at all-time highs and prices well below past years, homeowners across the nation are in for some well-deserved relief from high energy costs,” AGA Pres. David N. Parker said during an Oct. 5 briefing.

Likely staying low
Severe weather and other factors still could affect gas demand and prices, Parker said. Barring extreme temperatures for extended periods, however, gas prices will likely stay low this year because utilities buy the fuel from suppliers throughout the year and store it underground, he said. “When they were purchasing gas to put into storage during the spring and summer months, wellhead prices were way down,” he said.

In its forecast, EIA said it expects total US marketed gas production will increase by 1.5% in 2009 and decrease by 3.8% in 2010. Marketed gas production in the Lower 48 states rose by 2.9% year-to-year this year through July despite a more than 40% decline in the working rig count during the period, it noted. “While production has remained stronger than expected through much of the year, EIA expects the pullback in drilling to lead to a 3.6% decline in Lower 48 production from the first half to the second half of 2009,” it said.

In addition to the natural rates of decline from producing wells, EIA said its current forecast assumes some additional curtailments as gas inventories begin to swell toward capacity limits this month.

“Although the working rig count has begun to increase slightly in recent weeks, EIA expects domestic natural gas production to continue to fall, with marketed production during the first half of 2010 to average 1.8 bcfd lower than the second half of 2009,” it said. “However, economic recovery and increasing demand next year are expected to push prices up and provide the incentive for increasing production later next year.”

It forecast increases in US LNG imports to about 471 bcf in 2009 and 660 bcf in 2010 from 352 bcf in 2008. Higher LNG imports may occur temporarily as cargoes are redirected from Europe, where storage is reaching capacity and prices have declined, EIA said.

“The startup of several large LNG supply projects in 2010 will lead to an increase in US LNG imports, although previous supply additions abroad have been slowed by construction delays and feed-gas shortages that contribute to EIA’s uncertainty about the future of current projects,” it said.

Contact Nick Snow at nicks@pennwell.com.

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