High prices said key to keeping US winter gas market in balance

Washington (Platts)--7Nov2005

Only continued high prices will dampen demand and keep the US natural gas
market in balance this winter, a leading energy analyst said Monday.
Below-normal temperatures or disruptions in heating oil supplies caused by
refinery restrictions, or an interruption in the flow of liquefied natural gas
could cause prices to spike to between $15/Mcf and $20/Mcf, Raymond James
energy analyst Marshall Adkins said in a note to clients.

     "Given the hurricane-related supply disruptions and easy year-over-year
weather [comparisons], we believe that higher gas prices will need to squelch
1.8 Bcf/d of gas demand relative to last year in order to balance the gas
market this winter," Adkins said.

     The gas market will strive to end the winter season with 800 Bcf in
storage, Adkins said and even with storage close to 3.2 Tcf there is enough
demand to draw supplies down to 531 Bcf by the end of the season. Adkins
believes the market will price gas higher to squeeze the extra 269 Bcf (1.8
Bcf/d during the heating season) out of the demand side. 

     The US Energy Information Administration reported last week that the
nation began the heating season with 3.168 Tcf in storage, just 32 Bcf shy of
the 3.2 Tcf mark.

     "The difference between the "theoretical" 531 Bcf of ending storage and
the more likely 800 Bcf of ending storage would be the amount of price-driven
demand destruction required to balance the system," Adkins said.

     Last week, the Interstate Natural Gas Assn, a pipeline trade group,
released a study by the Arlington, Virginia-based energy consultants at Energy
and Environmental Analysis that predicted 3 Bcf to 3.5 Bcf/d of demand
destruction occurring this winter due to higher prices. 

     Adkins noted that last year's 2.04 Tcf of gas consumption is skewed by
the fact that the winter of 2005 was 7% warmer-than-normal. He added 4 Bcf/d
(400 Bcf) to his demand model for a normal cold winter and 2.5 Bcf/d (375 Bcf)
of supply shortfall because of production shut-ins in the Gulf of Mexico. He
subtracted 1 Bcf/d (150 Bcf) from his model for higher LNG imports to end with
total winter demand from storage of 2.67 Tcf.

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