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June 16, 2004: Natural Gas Markets To Remain Tight

June 16, 2004
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WASHINGTON - Projected warmer-than-normal weather, a strengthening economy, and flat production are likely to be the cause of any higher natural gas costs as we enter another summer of tight natural gas markets, according to the Natural Gas Supply Association (NGSA).

"Last year, the National Petroleum Council (NPC) warned that without significant change to the tight balance between supply and demand, wholesale natural gas customers would continue to see weather-related volatility - and that is precisely what's coming to pass," said Joseph Blount, NGSA chairman and president of Unocal Midstream and Trade. "Consistent with the NPC's findings, overall market costs are also likely to trend upward throughout this cooling season, peaking during the hottest days of the year."

Although NGSA does not project wholesale or retail prices, an association analysis, publicly reported data, and competitive market fundamentals indicate upward pressure this cooling season based on several factors, including: weather, the economy, and additional demand increases in specific market sectors. Storage and production, two other key components, are expected to apply somewhat less pressure this summer.

Even though producers are drilling at a three-year high - with more than 1,000 rigs now operating in the U.S. - they face the challenge of extracting natural gas from mature supply regions where output is naturally declining, says the association.

"Producers are responding to increased demand, but we are working harder and harder just to keep production levels constant," said Blount. "We are focused right now on getting as much natural gas to market as possible, and putting enough in storage to meet the upcoming winter months with sufficient supply. Unfortunately, though, there is little short-term relief ahead for customers. "

According to an NGSA-commissioned forecast by Energy Ventures Analysis, overall demand will increase as much as 3 percent, up to 51 billion cubic feet per day (Bcf/d) this summer from 49.5 Bcf/d last summer. Demand from the power generation sector, in particular, is expected to grow, due to increased air conditioning load and lower hydroelectric output in the Pacific Northwest and California.

Publiaction date: 06/14/2004

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