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7.9.03 Short-term energy outlook from U.S. Department of Energy Summary: Storage injections are setting a record pace and levels expected to be adequate by November. The Energy Information Administration (EIA) says natural gas storage situation has "improved dramatically." The industry set a record with a total of 487 Bcf in injections in June. That injection figure is 40 percent above normal for the month of June. And the storage gap is closing:
"The need for relatively large volumes of natural gas to refill working gas storage in 2003 remains high and this means that high price volatility can be expected to continue. "However, a definite improvement in the supply situation has occurred and the probability of reaching adequate storage levels by November has risen." Summary: Natural gas spikes may have more to do with high demand and less to do with supply constraints than previously thought. EIA reports that last winter was more severe than previously thought and the first quarter 2003 was 6.5 percent COLDER than originally thought because: "The Climate Prediction Center (CPC) of the National Oceanographic and Atmospheric Administration (NOAA) indicated on its website that incorrect temperature calculations led to errors in a broad range of regional and national degree-day calculations since last July." EIA says of NOAA's revision: "The first quarter result [6.5 percent more heating degree days than previously thought] is highly significant and indicates fuel demand strength and price pressures early this year were far more weather-related than originally thought. This is particularly important for natural gas, since we now understand last winter's price spike was much more of a demand shock phenomenon and less of a supply constraint issue than previously believed." Summary: But industrial demand was lower than thought and may somewhat balance out the weather revisions. EIA says it previously over-estimated industrial demand during 2002. EIA revised its industrial demand numbers downward from its previously estimated 7.85 Tcf to 7.12 Tcf. This somewhat balances out the mistaken estimate of weather. Summary: Wellhead prices still on course for the largest year-over-year price increase on record In 2003, wellhead prices are projected to show an increase of about $2 per thousand cubic feet (the largest U.S. annual wellhead price increase on record) over the 2002 annual average, pushing the annual average for the year to about $5 per thousand cubic feet. Summary: Supply situation improving. Natural gas production is expected to increase by 3 percent this year. The good news is that in 2004, prices are projected to drop by about 13 percent, as the overall supply situation improves slightly, assuming normal weather. |
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