The Energy Information Administration (EIA) reports several factors are increasing the probability of higher U.S. gas demand for the rest of 1997.
Nuclear power plant outages, higher air conditioning use this summer, a thriving economy, and the gradual decline of hydroelectric power output from previous record high usage set the stage for increased gas demand in the electric power and industrial sectors, according to EIA.
EIA's latest short-term energy outlook predicts U.S. total gas demand to be up 1.2% for 1997, 3.5% during the second half.
It said, "Demand increases could erode the stock cushion left by the mild winter of 1996-97. Underground gas storage was about 200 bcf-3.4% above 1996 levels at the end of June-but levels are expected to be about even with 1996 levels by the start of the heating season.
"Even with normal weather next winter, gas demand in the first quarter of 1998 is expected to be 7.3% higher than it was in the first quarter of 1997."
EIA says although strong natural gas prices are already expected next winter, "additional demand pressure from either a particularly hot summer or early cold spell next fall could upset what is emerging as a rather delicate short-term balance for natural gas demand and supply."
EIA also reported world oil prices are down from 1996 levels and are expected to average $19-20/bbl for the forecast period, which extends through the end of 1998.
"World oil prices tumbled by more than $5/bbl from January-April 1997 due to unusually warm winter weather combined with increasing world crude oil supplies, including 600,000-700,000 b/d from Iraq."
Prices may creep up over the next few months as demand for gasoline rises, but EIA projects lower average annual world oil prices in 1997 and 1998 than in 1996, as gains in world production offset demand.
Product price decline seen
EIA says retail petroleum product prices are generally expected to follow crude prices downward, with average 1997 levels for retail motor gasoline and diesel fuel oil prices falling below their 1996 averages.
Gasoline demand is expected to increase 1.9% in 1997 and 2.3% in the third quarter, buoyed by a 3.2% increase in highway travel during this peak season.
"Solid economic growth and lower gasoline prices are expected to contribute to continued growth in highway travel and a similar increase in gasoline demand in 1998."
EIA projects an average natural gas wellhead price in 1997, about 5% higher than in 1996, due to this year's very high first quarter price spike.
"This assumes that the weather is normal, particularly in the late autumn, when inventories are still building. A cold snap during this time period could cause stock drawdowns leading to high wellhead prices for the winter," said EIA.
"The price should decline in 1998, again assuming normal weather and increases in domestic production and Canadian imports."
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