Washington (Platts)--14Apr2009

Natural gas consumption by the industrial sector is expected to decline
by more than 7% this year, the US Energy Information Administration said
Tuesday, cutting its projected 2009 average Henry Hub spot price by 9.2% to
$4.24/Mcf.

The agency continued lowering its projections for gas prices in 2009,
reflecting a sharp drop-off in demand by heavy industries hit by the ongoing
US recession.

"Lower consumption, brought about by the economic slowdown, and higher
production levels have been the primary contributors to lower natural gas
prices," EIA said in its April Short-Term Energy Outlook.

"Henry Hub spot prices began April below $4/Mcf and, absent signs of
dramatic economic recovery, are expected to remain below $4 until seasonal
space heating demand picks up this fall," the report continued. "Higher prices
are expected in 2010 as the economy improves."

EIA said it sees two possible scenarios for the price picture later this
year and heading into 2010. Cutbacks in gas drilling and credit problems for
producers could force too much supply out of the market, pushing up prices as
demand picks up. On the other hand, it said, a larger-than-expected increase
in liquefied natural gas import volumes alongside sustained economic weakness
could keep prices depressed.

EIA put the projected 2010 Henry Hub spot price at $5.83/Mcf.

Despite the sharp decline in industrial gas use, EIA said it expects
consumption in the residential and commercial sectors to increase slightly
this year. Power generators also continued to use more gas. "The expected 0.7%
increase in natural gas consumption in the electric power sector this year is
supported by a projection of lower natural gas prices for power generation
relative to coal, particularly in the Southeast," EIA said.

If the economy picks up, "small consumption growth in the industrial and
electric power sectors should be offset by small declines in the residential
and commercial sectors," said the report.

Marketed gas production is expected to drop 0.3% in 2009 and 1% in 2010.
US producers are operating about half the gas rigs as they were at the end of
last summer, declining from slightly more than 1,600 in late August 2008 to
about 800 as of April 9, EIA said, quoting Baker Hughes.

"The precipitous drop in drilling activity and declining productivity of
wells already in place are expected to cause production to steadily decline as
the year progresses," EIA said.

More supply curtailments might be needed as gas storage levels approach
capacity later this summer. Working gas in storage was 1.67 Tcf, and current
inventories are 310 Bcf more than the 5-year average.

The storage level at the end of March was the second highest recorded at
this point in the year since 1991, the highest being at the end of March 2006,
EIA said. "Working natural gas inventories are projected to rise to possibly
new record-high levels by the end of the summer injection season," it said.

EIA said it expects LNG imports to increase to about 480 Bcf this year,
from 352 Bcf in 2008. Lower global economic activity and new liquefaction
capacity in the Middle East and elsewhere should boost US imports.

Still, the agency cautioned that LNG projections are uncertain. "Initial
production from new liquefaction capacity has been slowed or delayed for
extended periods, and US natural gas demand is also projected to be lower in
2009," it said.

For US LNG imports to increase significantly, domestic gas production or
imports from Canada would need to be lower than expected. US pipeline imports
are expected to decline by about 11% in 2009, EIA noted.
--Joel Kirkland, joel_kirkland@platts.com