Note:  The EIA says that gas storage levels at the end of December were 10% 
lower than the previous record low set in 1976. 
They have revised their price forecast for 2001 to $5.20 (with the heating 
season at $6.23) and estimate that 2000 will come in 
at $3.70.

EIA Raises Price Forecasts, Confirms Dire Storage Situation

The Energy Information Administration (EIA) again raised its wholesale and 
retail gas price projections for the winter and confirmed that gas storage 
levels at the end of December were lower by 10% than the previous record low 
set in 1976. 

Strong demand during November and December, which the National Weather 
Service has said were the coldest on record, reduced gas stocks to record 
lows for the period, and continued cold should keep storage low and prices 
very high for the remainder of the heating season, EIA said yesterday in its 
Short Term Energy Outlook. 

For the fourth quarter of 2000, gas-weighted heating degree-days were 
estimated to have been up by 28% over last year's relatively mild fourth 
quarter. Gas demand increased 10% over the year prior. Over the entire six 
months of winter (Oct. 1, 2000 to March 31, 2001), EIA projects demand will 
rise by 7% compared to the prior winter, with residential and commercial 
sector demand up by 17% over last winter. 

EIA now expects wellhead prices to average $5.20/Mcf in 2001 compared to an 
estimated $3.70 in 2000 (72% higher than in 1999) and about $4.50 projected 
for 2002. It also raised its projections on retail prices to 70% above winter 
1999-2000 levels. 

The expected 45% increase in the nominal average residential price would be 
the highest season-to-season growth rate since at least 1975." 

Wellhead prices from September through November were more than double the 
price of a year earlier. For the month of December, spot wellhead prices 
averaged "an unheard of $8.36/Mcf. Never have spot gas prices at the wellhead 
been this high for such a sustained period of time," EIA said. "Although high 
oil prices have encouraged the current strength in gas prices, the 
predominant reason for these sustained high gas prices was, and still is, 
uneasiness about the winter supply situation." 

The American Gas Association (AGA) reported last week that working gas levels 
in storage had fallen 209 Bcf during the week ending Dec. 29 to 1,729 Bcf. 
"Translating the AGA data into EIA end-month statistics, we estimate that gas 
stocks were about 780 Bcf below year-ago levels and about 520 Bcf below the 
previous 5-year average," EIA said. "With almost three months of winter still 
to go, falling stocks have raised fears about the domestic supply situation, 
helping to elevate spot and futures prices." 

The AGA made its own announcement yesterday, assuring the public that gas 
supply would be "adequate to meet customers' needs for the remainder of the 
winter heating season. 

"Today, there is more natural gas held in underground storage --- 1.73 Tcf 
--- than has ever been removed from storage during the remainder of any of 
the last five winter heating seasons," said AGA President David Parker. 
Natural gas storage accounts for about 20% of the natural gas consumed during 
the winter heating season, which traditionally runs Nov. 1 - March 31. 

"Rig counts are at record levels and new production will be forthcoming," he 
noted. "But it takes time for new exploration to produce adequate volumes of 
gas to meet increased demand." 

In the meantime, Parker noted, utilities are promoting energy-efficiency 
tips, reminding customers of flexible bill-payment programs and working to 
help low-income individuals. 

EIA expects wellhead prices to remain above $6 for the remainder of the 
heating season, with prices averaging $6.23/Mcf this winter, "more than two 
and one half times the price of last winter." EIA predicts wellhead prices 
during the spring and summer will drop by about $2/Mcf as weather-related 
demand recedes. However, storage injection demand should keep wellhead prices 
above $4 this year. 

Assuming normal weather, EIA expects gas demand to grow by 2.9% in 2001 and 
by 2.7% in 2002, compared with estimated demand growth of 4.5% in 2000. The 
forecast for overall demand growth in 2001 is down considerably from EIA's 
projections last month because higher gas prices have reduced expected 
industrial gas use (up 4% from 2000) more than previously estimated. In 2002, 
the forecast is for even slower growth. However, gas demand from non-utility 
electricity generation in 2001 is now expected to be up by a solid 9%. 
Electric utility gas demand is expected to remain level with consumption 
rates in 2000. 

EIA increased its projections on gas production growth in North America to 
5.4% for this year and 2.5% in 2002. It projects a massive 16% increase in 
gas imports this year and another 4% hike in 2002. "While Canadian export 
capacity may not be fully utilized this winter, we expect net imports to be 
7.8% higher than last winter's imports," EIA said, noting that the 1.325 
Bcf/d Alliance Pipeline began service Dec. 1. EIA also referred to a recent 
report by Canada's National Energy Board that predicts gas deliverability 
from Western Canada will rise by 1.1 Bcf/d by 2002 because of the ongoing 
drilling boom. 


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