Power Engineering - EIA outlook sees slower power sector growth

8 April 2008 -- The Energy Information Administration said in its "Short Term Energy Outlook" released April 8 that it expects total natural gas consumption to increase by 1.0 percent in 2008 and by 0.8 percent in 2009.

EIA said that milder summer temperatures are expected to leave natural gas consumption for electricity generation unchanged in 2008, after an increase of more than 10 percent in 2007. Consumption growth of 2.9 percent is expected in the electric power sector in 2009.

Natural Gas Production
Total U.S. marketed natural gas production is expected to increase by 2.9 percent in 2008 and by 0.2 percent in 2009. In 2008, the development of deepwater supplies is expected to drive production growth of 4.8 percent in the Gulf of Mexico. Production from the Lower-48 onshore region is expected to continue the upward trend of recent years, increasing by 2.7 percent, led by growth in unconventional production basins.

In 2009, EIA said production growth will be offset partially by the absence of further increases in rigs drilling natural gas prospects; the natural decline in production from current wells, particularly in the offshore fields; and rising production costs. In 2009, natural gas production in the Gulf of Mexico is projected to decline by 0.7 percent while production in the Lower-48 onshore region is expected to increase by 0.3 percent.

Imports of liquefied natural gas (LNG) are projected to reach about 680 billion cubic feet (Bcf) for 2008, a 12 percent decline from the record volume received in 2007. Strong demand in Asia and Western Europe has greatly reduced the number of U.S.-bound LNG cargoes so far this year, EIA said. Although current import volumes are low, EIA expects U.S. LNG imports to rebound slightly this summer as global demand wanes. An increase in global LNG supplies, particularly expansions in Nigeria and Norway, are expected to boost shipments of LNG to the United States in 2009, when import volumes are projected to total about 950 Bcf.

On March 28, working natural gas in storage was 1,248 Bcf. Current inventories are now 6 Bcf above the 5-year average (2003-2007) and 304 Bcf below the level during the corresponding week last year.

Natural Gas Prices
The Henry Hub spot price averaged $9.74 Mcf in March, nearly $1.00 per Mcf more than the average spot price in February. This was the first month since December 2005 that Henry Hub spot prices averaged more than $9 per Mcf.

EIA said the recent upward price shift reflects a number of factors, including the dropoff in LNG imports compared to year-ago levels, high oil prices and the drawdown in storage to the lowest levels in four years. As seasonal demand wanes, spot prices are expected to decline before they begin to rise again toward a winter peak. On an annual basis, the Henry Hub spot price is expected to average about $8.59 per Mcf in 2008 and $8.32 per Mcf in 2009.

Given the assumption that summer temperatures this year will be close to normal, total annual electricity consumption is expected to grow at a relatively slow rate of 0.7 percent in 2008 and return to a more normal rate of 1.3 percent in 2009.

Coal Prices
Spot prices for coal, especially in the Appalachian region, have rapidly increased in recent months, EIA said. Projected increases in renewable generation, particularly hydropower and wind, combined with modest growth in electricity consumption, are expected to keep growth of coal consumption in the electric power sector to about 0.5 percent and 0.3 percent in 2008 and 2009, respectively.

U.S. coal production fell in 2007 by 1.5 percent, the first decline since 2003. Projected weak demand for coal is expected to result in small growth (0.6 percent) in coal production for 2008 and no growth for 2009. Total coal stocks are estimated to have grown by 1.3 percent in 2007 despite a nearly 16 percent decline in primary stocks (which are held by producers and coal distributors). This trend is expected to continue in 2008, as total coal stocks are forecast to rise by 3.6 percent and primary stocks are projected to decline by 11.2 percent.

Coal Imports and Exports
Growth of coal imports into the United States slowed in 2007 to 0.3 percent. Coal imports had experienced double-digit growth previously (19 percent in 2006 and 12 percent in 2005) but modest growth of 0.9 percent is expected in 2008. Increases in coal demand, coupled with the need for lower-sulfur coals, will see imports grow by 6.2 percent in 2009.

U.S. coal exports are estimated to have increased by nearly 10 million short tons, or 19.2 percent, in 2007. In 2008, strong global demand for coal, coupled with supply issues in other major coal-exporting countries, is expected to result in a 15 percent increase in U.S. coal exports. Slower global coal demand growth in 2009 is projected to lead to a 7.4 percent decline, about 5 million short tons, in exports.

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