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

U.S. Petroleum Product Prices.

Projected regular-grade gasoline retail prices rise from an average
of $2.78 per gallon in 2010 to $3.15 per gallon in 2011 and $3.30 per
gallon in 2012. There is regional variation in the forecast, with
average expected prices on the West Coast about 25 cents per gallon
above the national average.

On-highway diesel fuel retail prices, which averaged $2.99 per
gallon in 2010, will average $3.43 per gallon and $3.51 per gallon,
respectively, in 2011 and 2012. Rising crude oil prices are the primary
reason for higher retail prices, but higher gasoline and distillate
refining margins are also expected to contribute to higher retail
prices.

The projected monthly average regular gasoline price peaks this
year at $3.24 per gallon in July. New York Harbor RBOB (reformulated
gasoline blendstock for oxygenate blending) futures contracts for July
2011 delivery over the 5-day period ending February 3 averaged $2.65 per
gallon and implied volatility averaged 30 percent. The probability the
RBOB futures price will exceed $2.80 per gallon (and the U.S. average
regular gasoline retail price exceed $3.50 per gallon) in July 2011 is
about 35 percent. The probability the RBOB futures price will exceed
$3.30 per gallon (and the gasoline retail price exceed $4.00 per gallon)
in July 2011 is about 10 percent.

Natral Gas

U.S. Natural Gas Consumption.

EIA expects that total natural gas consumption will remain flat
from 2010 to 2011. Reported residential and commercial consumption are
expected to decline by 0.3 percent and 2.4 percent, respectively,
primarily because of changes to EIA’s methodology for collecting and
reporting natural gas consumption data. Industrial consumption rises
from 18.0 billion cubic feet per day (Bcf/d) in 2010 to 18.3 Bcf/d in
2011 as the natural-gas weighted industrial production index increases
2.4 percent year over year.

Total consumption grows 1 percent in 2012, from 66.2 Bcf/d to 66.8
Bcf/d. Increases in natural gas consumption in the electric power
sector (2.9 percent) and industrial sector (1.2 percent) are partially
offset by slight declines in residential and commercial consumption.
EIA expects electric power sector and industrial sector consumption to
grow by 2.9 percent and 1.2 percent, respectively, in 2012.

U.S. Natural Gas Production and Imports.

Total marketed natural gas production grew strongly throughout 2010
(4.4 percent), increasing from 59.7 Bcf/d in January to an estimated
63.7 Bcf/d in December. Year-over-year growth in 2011 is expected to
slow considerably to just 0.8 percent as an increase of 1.0 Bcf/d in the
lower-48 states is partially offset by a decline of 0.4 Bcf/d in the
GOM.

The latest EIA data for monthly natural gas production in the
Natural Gas Monthly, showed an increase in lower-48 states’ production
for November 2010, reversing October’s decline. Modest declines are
expected to resume and continue through 2011, however, because of a
falling drilling rig count in response to lower prices. The number of
rigs drilling for natural gas reported by Baker Hughes Inc. increased
from a low of 665 in July 2009 to 973 in April 2010. Over the following
6 months the natural gas rig count stayed relatively unchanged.
However, over the last 3 months the rig count has fallen, dropping to
911 rigs as of February 4. The large price difference between petroleum
liquids and natural gas on an energy-equivalent basis contributes to an
expected shift towards drilling for liquids rather than for dry gas.

Increasing consumption, especially in the electric power sector,
contributes to higher prices and more economic incentive for producers
to resume drilling. Total domestic natural gas production increases 1.1
percent in 2012. Lower-48 production is expected to increase throughout
2012 from 55.0 Bcf/d in January to 57.4 Bcf/d in December, which would
be strong growth, but significantly less than during 2010. Federal GOM
production declines slightly, by 0.4 percent (0.02 Bcf/d) in 2012.

EIA expects gross pipeline imports of 8.7 Bcf/d in 2011 and 8.2
Bcf/d in 2012, year-over-year decreases of 4.2 and 5.5 percent,
respectively. Projected imports of liquefied natural gas (LNG) average
1.1 Bcf/d in 2011, a 4.4-percent decrease from 2010 levels. LNG imports
in 2012 grow modestly to 1.2 Bcf/d. High domestic production, high
inventories, and low U.S. prices relative to European and Asian markets
should continue to discourage LNG imports.

U.S. Natural Gas Inventories.

On January 28, 2011, working natural gas in storage stood at 2,353
Bcf, slightly below last year’s level at this time. At the end of the
winter heating season (March 31, 2011), EIA expects that about 1,651 Bcf
of working natural gas will remain in storage, which is a downward
revision of about 120 Bcf from last month’s Outlook.

Colder-than-normal weather east of the Rocky Mountains in January
contributed to a larger-than-expected draw on inventories. EIA expects
near-record high inventories to continue through most of 2011. Falling
production and greater consumption contribute to lower inventories in
the second half of 2012.

U.S. Natural Gas Prices.

The Henry Hub spot price averaged $4.49 per MMBtu in January, 2011,
$0.24 per MMBtu greater than the average spot price in December 2010.
EIA expects that the Henry Hub spot price will average $4.16 per MMBtu
in 2011, a drop of $0.22 per MMBtu from the 2010 average. EIA expects
the natural gas market to begin to tighten in 2012, with the Henry Hub
spot price increasing to an average of $4.58 per MMBtu.

Uncertainty over future natural gas prices is slightly lower this
year compared with last year at this time. Natural gas futures for
April 2011 delivery (for the 5-day period ending February 3) averaged
$4.39 per MMBtu, and the average implied volatility over the same period
was 34 percent. This produced lower and upper bounds for the 95-percent
confidence interval for April 2011 contracts of $3.40 per MMBtu and
$5.66 per MMBtu, respectively. At this time last year, the natural gas
April 2010 futures contract averaged $5.35 per MMBtu and implied
volatility averaged 46 percent. The corresponding lower and upper limits
of the 95-percent confidence interval were $3.80 per MMBtu and $7.50 per
MMBtu.

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

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