By the OGJ Online Staff
HOUSTON, Apr. 11, 2001Only sharply higher-than-expected production performance or a sharper-than-anticipated downturn in industrial activity will prevent spot gas prices from staying in the $4-5 range through the end of summer, the Energy Information Administration said in its April energy market assessment.
However, the EIA has cut its projections for gas demand growth to a 1.9% rate this year, down from 2.3% in March, following the strong 4.9% performance in 2000. It blamed weakening demand on a slowdown in the industrial and commercial sectors.
Sustaining the underlying gas demand is the expectation hydroelectric and nuclear power availability this summer will fall below 2000 levels due to low winter precipitation rates and required nuclear plant maintenance, it said. The EIA projected an 8% decline in hydroelectric output in California, Oregon, and Washington compared to last summer. Nuclear generation is expected to be 5.6% lower than last summer.
The agency said this summer’s overall cooling degree-days (CDD) are expected to be normal, or about 1% below last summer’s CDD, which were well above normal. Summer electricity demand growth is expected to be 2.5% higher than last summer’s based mainly on economic factors, the agency said, including higher housing stocks, employment, and modest economic growth.
However, agency forecasters said any growth at all “may strain power resources that are already near the limit,” especially in the Pacific Northwest. In California, summer electricity demand typically exceeds winter electricity demand by about 18%, the EIA said.
Although gas production and imports are expected to increase, the agency does not now expect gains in supply will be enough to bring the wellhead price down to the $2-3/Mcf range in the short term. One factor keeping prices relatively high is continuing concern over the adequacy of injections into underground storage.
EIA estimated working gas in storage ended the season at 718 bcf, the lowest recorded by the agency and 40% below the previous 5-year average. The agency said the gas supply situation this injection season bears close monitoring.
Spot gas prices have remained over $4/Mcf since late June 2000. Moreover, EIA forecasters said they now believe, given the current state of the gas market, “it will be a while (if ever) before prices at the wellhead return to the low level of $2/Mcf experienced just 1 year ago.” In 2001, the annual average wellhead price is projected to average over $5/Mcf.
If the spring and summer weather is especially hot in regions that consume large quantities of gas-fired electricity, such as California and Texas, then injections into underground storage for the next winter would again be strained, resulting in sharply rising prices from already “lofty” current levels, EIA said.
Net imports of gas are projected to rise by about 13% in 2001 and by another 4% in 2002. For this past winter, EIA estimated net imports were 11% higher than 1999-2000 winter imports. For this summer, the agency projected gas imports will be up 17% from last summer’s as demand for storage refill is expected to be high.
Electric power demand for oil is projected to continue to rise through third quarter 2001. Although the favorable price differential for oil relative to gas is expected to continue through the forecast period, EIA predicted by the second half of 2001, expected increases in gas-fired capacity are expected to keep gas demand for power generation growing.