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WTI averages close to $36 a barrel in February, EIA projects 2003 average of less than $30 per barrel Natural gas spot prices peaked above $18 per million Btu in February, remain well above $7 per million Btu with working as in storage 52 percent below last year, 38 percent below five-year average Petroleum News Alaska
The U.S. Department of Energy's Energy Information Administration said March 6 that it expects natural gas prices to stay high well into spring. The spot price at the Henry Hub closed above $18 per million British thermal units in the third week of February, the agency said, a peak attributed to low storage levels and cold weather.
The EIA said prices have dropped, but remain well above $7 per million Btu “because cold weather over the course of the last several weeks has pushed underground storage to low levels.”
At the end of February, the agency said, gas storage was 52 percent below the February 2002 level, and 38 percent below the five-year average for February.
Over the winter (October through March) the EIA expects wellhead natural gas prices to average $4.45 per thousand cubic feet, about $1.90 an Mcf higher than last winter's price. For all of 2003, wellhead prices are expected to average $1.90 an Mcf above 2002 prices.
“On an annual basis, this price would be a record in both nominal and real terms,” the agency said. The EIA said its projection is based on lower volumes of gas in underground storage and high oil prices, continued increases in total demand and substantial growth in industrial demand.
Natural gas demand in 2004 “is projected to continue to rise as industrial demand continues its recovery from its 2002 lows,” the agency said. Natural gas demand up 9 percent For this winter, natural gas demand is expected to be up 9 percent from last winter, driven by weather. If March weather is normal, the EIA said, “natural gas consumption-weighted heating degree-days” for the fourth quarter 2002-first quarter 2003 heating season “will be 13 percent above year ago levels.”
Working gas in storage is expected to end the winter season down, causing a greater than usual demand for natural gas to fill working gas storage in 2003.
The low storage levels and cold weather the last week in February also “led to severe pipeline restrictions through much of the country, but particularly in the Mid-Atlantic and New England regions, where temperatures have consistently fallen below normal,” the EIA said. “In general terms, shippers with firm transportation capacity on the Columbia Gas Transmission system,” servicing local distribution companies in the Northeast, “must fully utilize their firm transportation capacity at receipt points other than storage prior to withdrawing quantities from storage.” In addition to that restriction, lines in the Columbia system “are dedicated to firm service and no interruptible service is available.” The combination of low storage and pipeline restrictions in the Northeast and Mid-Atlantic have caused volatility in regional s pot prices, with the average pipeline price for natural gas going into New York City $9.54 for February.
Natural gas production was down by 2.8 percent in 2002 and is projected to increase only marginally, by 1.2 percent, in 2003. “Domestic production growth should accelerate in 2004 but, given recent experience, the extra effort might not result in increases above 2 percent,” the agency said. Demand is expected to “outpace production growth,” the EIA said, leading to an increase in natural gas imports. Oil prices higher than expected The agency said February crude oil prices were higher than expected because of fears of war in Iraq, low inventories, slow recovery in Venezuelan exports, continued cold weather and sharply higher U.S. natural gas prices. West Texas Intermediate prices averaged close to $36 for the month, a level not seen since October 1990. Oil inventories continued lower through the month resulting in a cumulative reduction in total commercial stocks of 103 million barrels since Sept. 30, the beginning of the heating season. Total OECD inventories reached an estimated 2,424 million barrels at the end of February, the agency said, which would be the lowest level since March 2000.
The EIA said it believes that even without additional disruptions to world supply in the near term, prices are likely to remain on the high side and subject to substantial volatility through 2003 because of the abnormally high stock build rates that would be required to bring about the kind of oil market balance that is consistent with WTI prices well below $30 per barrel.
The EIA's WTI crude oil price projection peaks in the mid-$30s this winter, followed by a drop back below $30 a barrel by the end of the year.
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