Energy Finance

Total gas consumption is expected to increase by 1.1% in 2008 and fall by 0.2% in 2009, according to the Energy Information Agency’s report released yesterday.

Consumption in 2008 is projected to be higher in every sector except for electric power, led by 4.1% and 3.2% percent growth in the residential and commercial sectors, respectively. While very slight growth is expected in the residential and commercial sectors in 2009, the contracting economy is expected to cause a 2.2% decline in industrial sector consumption next year. The weakness in global economic growth could limit U.S. exports of gas-intensive products and further reduce gas consumption by industrial consumers.

Meanwhile, total U.S. marketed natural gas production is expected to increase by 6% in 2008 and by 2% in 2009. Production activity from unconventional fields in the States of Texas, Wyoming, and Oklahoma is expected to increase supply from the Lower 48 (non-GOM) by almost 10% this year. While continued onshore production growth is expected in 2009, lower average prices and poor economic conditions are expected to limit the expansion of supplies to 1.9%

For 2008, federal GOM production is now expected to decline by 14.8% as repairs to supply infrastructure continue, while 2009 growth of 2.7% reflects the expectation of further recovery and less shut-in production during the 2009 hurricane season.

On October 31, 2008, working natural gas in storage was 3,405 Bcf. Current inventories are now 78 Bcf above the 5-year average (2003–2007) and 130 Bcf below the level during the corresponding week last year.

The Henry Hub spot price averaged $6.94 per Mcf in October, $0.94 per Mcf below the average spot price in September. The slowing economy, continued growth in domestic gas production, and the significant decline in oil prices have led to a dramatic shift in expectations for gas prices over the forecast.

On an annual basis, the Henry Hub spot price, which averaged $7.17 per Mcf in 2007, is expected to average $9.25 per Mcf in 2008 and $6.82 per Mcf in 2009, $1.35 per Mcf lower than the forecast 2009 price in last month’s EIA Outlook.

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