EIA hikes its 2005 gas price forecast by 20%

GAS DAILY - Friday, April 8, 2005

      The Energy Information Administration said Thursday it believes U.S. spot gas prices will average $6.95/Mcf in 2005, a steep 20% increase above the $5.80/Mcf average it predicted just last month.

      In its April short-term energy outlook, EIA noted that the Henry Hub spot prices averaged over $7/Mcf in March, compared with $5.55/Mcf in March 2004. “High crude oil prices, combined with the unusually cold March weather for much of the nation, increased heating demand and boosted spot prices for natural gas to levels above $7,” the agency said.

     While EIA said prices may dip during the spring and summer, it believes supply conditions “are expected to remain tight,” which should keep a floor under the market throughout the year.

     And though gas storage inventories remain “adequate,” EIA cautioned that record-high global crude oil prices, a strengthening U.S. economy and the expectation of below-normal hydro supplies in the Pacific Northwest through mid-summer are the “principal reasons” for the $1.15/Mcf increase over last month’s 2005 price forecast.

     The agency also predicted that spot prices will remain unusually strong in 2006, averaging $6.90/Mcf, or slightly above the $6.60/Mcf it called for in the March outlook.

     The agency predicted that domestic gas demand will rise by 1.7% in 2005, down from the 2.2% growth rate it predicted last month. On the supply side, domestic gas production is expected to grow 0.7% this year vs. 2004, despite an expected 8% jump in gas-directed drilling, according to EIA. In March, EIA had predicted that gas output this year would rise 0.5%.

     Demand in 2006 will increase by 3.2%—unchanged from last month’s projection—largely because of weather-related demand and continued strength in gas-intensive industrial production, EIA said. The agency estimated that working gas in storage as of March 31 stands 12% above the year-ago level and 14% above the five-year average.

JB