Jan. 8, 2001—U.S. government energy forecasters lowered projections for natural gas demand growth to 2.9% this year, compared to 2000, down from a forecasted 3.8% growth rate projected in December.

The U.S. Energy Information Administration (EIA) said it cut projections because of higher estimates for fourth quarter demand due to colder-than-normal weather and higher gas prices, which is expected reduce industrial use in 2001 more than previously estimated. This year’s electric utility gas demand is still expected to remain about level with 2000 consumption.

Blaming colder weather and higher prices, EIA is now estimating residential gas users’ bills will rise 70%, compared to last winter. Previously, the agency forecast a 55% increase. At the same time, EIA lifted its 2001 average wellhead price forecast to $5.20/Mcf, up from $4/Mcf the agency forecast in December.

Very large increases in heating-related demand materialized in November and December, resulting in a sharp reduction of gas available in storage to well below the previous low recorded by EIA. The agency said December 2000 estimated working gas storage level is 10% below the previous low set in 1976.

Underground working gas storage levels are currently about 31% below year-ago levels and a “remarkable” 23% below the previous 5-year average, the EIA said.

For the entire year 2000, the average wellhead price for natural gas averaged an estimated $3.73/Mcf, a 72% increase over 1999. The new estimates shows severe winter weather in November and December 2000 pushed natural gas demand up 15% in these months, compared to the same months in the prior year. EIA estimates gas demand for all of 2000 was up 4.5% over 1999.

Production rising
For the fourth quarter of 2000, gas-weighted heating degree-days were estimated to have been up by 28% over 1999’s relatively mild fourth quarter. While rising prices prompted industrial and utilities users to switch to fuel oil whenever possible, the EIA is projecting residential and commercial sector demand could be up by 17% this winter over last.

Domestic gas production is estimated to have risen 1.1% in 2000 and is forecast to increase by significantly higher rates of 5.4% rate in 2001 and 2.5% in 2002.

New supply will be required to meet expected increases in demand for space heating and power generation and to prevent storage conditions from deteriorating to a worse condition than has already been experienced this year, the EIA noted.

It is predicting net imports of natural gas will rise 16% in 2001 and another 4% in 2002. While Canadian export capacity may not be fully utilized this winter, EIA says net imports will be 7.8% higher than last winter’s imports. Western Canada supplies 15% of the gas consumed in the U.S..

Next year, EIA forecasters believe the storage situation will improve modestly and with that, a decrease in the average annual wellhead price. It said increases in production and imports of natural gas needed to keep pace with the rapidly growing demand for natural gas will be accompanied, for the time being, by relatively expensive supplies for gas due to rising production costs and capacity constraints on the pipelines.

Electricity demand and supply
Forecasters project electricity demand will rise 1.7% this year, compared with estimated sales in 2000 that were 5.3% higher than the previous year’s level. Electricity demand growth is expected to be slower in 2001 than in 2000 partly because economic growth is also slowing from its higher 2000 level.

This winter, total electricity sales by electric utilities are expected to be up by 3.9% over last winter’s sales, driven by increased demand in the residential and commercial sectors, which are expected to be up by 6.6 and 3%, respectively.

In the fourth quarter of 2000, previously falling demand for oil-fired generation began to turn around as the price differential between natural gas and oil in the electricity generating sector shifted to favor oil, prompting those plants which can switch to oil to do so.

The favorable price differential for oil relative to gas is expected to continue this year and next, according to the EIA. Growth in coal-fired generation also turned positive in the fourth quarter of 2000. Nevertheless, by the second half of 2001, expected increases in gas-fired capacity are expected to keep gas demand for power generation growing.

January’s outlook is based upon a soft landing for the U.S. economy in 2001; solid growth in 2002; generally declining oil and gas prices, although price levels remain relatively high by historical standards; strong growth in natural gas demand fueled by demand from the electric generation sector from spring 2001 on; and a return to approximately normal growth in petroleum demand, the EIA said.