WASHINGTON (MNI) – The following is the second and final part of
excerpts from the Energy Information Administration’s November
Short-Term Energy Outlook published Tuesday:

Natural Gas

U.S. Natural Gas Consumption.

This month’s Outlook forecasts that total natural gas consumption
will grow by 4.3 percent to 65.0 billion cubic feet per day (Bcf/d) in
2010, and then rise slightly in 2011 to 65.4 Bcf/d (Total U.S. Natural
Gas Consumption Growth Chart). This growth in 2010 is largely due to
increases in industrial and electric power sector consumption of natural
gas. Hot weather in the summer and low natural gas prices drove the
increased use of natural gas for electric power generation in 2010.
Forecast population-weighted cooling degree-days for the United States
drop by 16 percent, from 1,460 in 2010 to 1,231 in 2011. As a result,
natural gas consumption for electric power generation falls slightly in
2011, even as natural gas prices drop.

Residential consumption of natural gas, which remains flat from
2009 to 2010, will rise by 1.8 percent in 2011, corresponding to a
predicted 2.9-percent increase in heating degree-days. In the first
quarter of 2011, residential natural gas consumption will average 25.8
Bcf/d, a decline of about 3 percent from the first quarter of 2010, when
cold weather drove residential consumption. Commercial and residential
consumption will remain flat in 2010 and rise slightly in 2011.

U.S. Natural Gas Production and Imports.

EIA is raising the marketed natural gas production forecast by an
average of 0.2 Bcf/d in 2010 and 0.4 Bcf/d in 2011 compared with last
month’s Outlook. Marketed natural gas production in the current
forecast increases by 2.5 percent this year, but still falls by 1.2
percent in 2011. The drop in 2011 is a result of a 13.5-percent
production decline in GOM production, which is only partially offset by
a small increase in lower-48 production. The relatively greater decline
in GOM production in 2011 is due to an estimated 90 Bcf less production
because of the 2010 drilling moratorium and the projected increase in
hurricane-induced production outages of about 30 Bcf in the GOM next
year compared with a relatively calm season this year.

The increase in the natural-gas-directed drilling rig count since
mid-2009, comprised of a growing share of horizontal drilling rigs in
the lower-48 states, contributed to the natural gas production growth in
2010. The number of rigs drilling for natural gas reported by Baker
Hughes increased from a low of 665 in July 2009 to 973 in April 2010.
Over the last 6 months the natural gas rig count has stayed relatively
unchanged, ending October 2010 with 969 active rigs. Drilling activity
declines modestly in 2011 because of relatively lower natural gas
prices. The large price difference between petroleum liquids and
natural gas prices on an energy-equivalent basis contributes to an
expected shift towards drilling in shale formations that contain a
higher proportion of liquids.

EIA expects gross pipeline imports of 9.1 Bcf/d in 2011, an
increase of 1.4 percent compared with 2010 imports. Projected liquefied
natural gas (LNG) imports average 1.27 Bcf/d in 2010, a 2.3 percent
increase from the 2009 levels. High domestic production and low U.S.
prices relative to European and Asian markets have discouraged LNG
imports into North America. However, LNG imports grow slightly in 2011
to 1.32 Bcf/d, a 4.5-percent increase from 2010 levels.

U.S. Natural Gas Inventories.

On October 29, 2010, working natural gas in storage rose to 3,821
billion cubic feet (Bcf) which exceeds the 3,784 Bcf reached at the end
of October 2009 (U.S. Working Natural Gas in Storage Chart). Last year,
storage injections continued into November, with working gas reaching a
record-high 3,837 Bcf on November 27, 2009. This year, however, EIA
expects a net 3 Bcf withdrawal during November because of a 20-percent
increase in forecast heating degree-days compared with November 2009.
At the end of the winter heating season (March 31, 2011), EIA expects
1,776 Bcf of working natural gas will remain in storage, about 114 Bcf
higher than the end of March 2010. This is an upward revision of more
than 70 Bcf from last month’s Outlook because of the current
higher-than-expected stock level and upward revision in the production
forecast.

U.S. Natural Gas Prices.

The Henry Hub spot price averaged $3.45 per million Btu (MMBtu) in
October, $0.43 per MMBtu lower than the average spot price in September
(Henry Hub Natural Gas Price Chart). The decline in prices over the
past two months was partly the result of high production, mild weather,
and the absence of significant hurricane activity in the Gulf of Mexico,
all of which contributed to the large inventory build. Projected Henry
Hub prices rise to $4.22 per MMBtu in January 2011 because of the
increase in winter space-heating demand. EIA has lowered the average
2011 Henry Hub price forecast from last month’s Outlook by $0.27 per
MMBtu, to $4.31 per MMBtu, based on the upward revisions in the domestic
production and inventory forecasts.

Uncertainty over future natural gas prices is slightly higher this
year compared with last year at this time. Natural gas futures for
January 2011 delivery (for the 5-day period ending November 4) averaged
$4.13 per MMBtu, and the average implied volatility over the same period
was 41 percent. This produced lower and upper bounds for the 95-percent
confidence interval for January 2011 contracts of $3.06 per MMBtu and
$5.59 per MMBtu, respectively. At this time last year, the natural gas
January 2010 futures contract averaged $5.20 per MMBtu and implied
volatility averaged 35 percent. The corresponding lower and upper limits
of the 95-percent confidence interval were $3.52 per MMBtu and $7.67 per
MMBtu.

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** Market News International Washington Bureau: 202-371-2121 **

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