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

Natural Gas

U.S. Natural Gas Consumption.

EIA expects total natural gas consumption will increase by 4.0
percent from 2009 levels to 65.0 billion cubic feet per day (Bcf/d) in
2010 and then remain relatively flat in 2011. The power generation and
industrial sectors account for the bulk of the projected increase in
consumption in 2010 over 2009.

Projected consumption of natural gas for power generation grows by
nearly 1.3 Bcf/d to 20.2 Bcf/d in 2010. The use of natural gas for
electric power generation surged this year because of the 23 percent
increase in U.S. cooling degree- days, resulting in an over 300 Bcf (11
percent) increase in natural gas consumption in the power generation
sector over the last 4 months compared with the same period last year.
Projected natural gas consumption in the power generation sector falls
by 0.4 Bcf/d (2.0 percent) next year because of the expected return to
near-normal summer temperatures.

Projected use of natural gas in the industrial sector also grows
significantly in 2010, increasing by 6.4 percent, from 16.8 Bcf/d in
2009 to 17.9 Bcf/d in 2010. Forecasted industrial-sector consumption
growth slows to 1.2 percent in 2011 as the projected increase in the
natural-gas-weighted industrial production index slows from 7.0 percent
in 2010 to 2.1 percent in 2011.

U.S. Natural Gas Production and Imports.

EIA predicts total marketed natural gas production will increase by
1.2 Bcf/d (2.1 percent) to 61.2 Bcf/d in 2010. Projected production
declines gradually in 2011, falling by 1.2 Bcf/d (1.9 percent) as
relatively low prices depress drilling activity.

A total of 7.9 Bcf of natural gas production was shut in because of
hurricanes during June, July, and August, compared with EIA’s original
projection of 57.4 Bcf for those 3 months. Nevertheless, the next 2
months are typically the height of the hurricane season and additional
outages are included in this forecast. Based on the latest NOAA
hurricane forecast, during the final 3 months of the hurricane season
this forecast includes 66.3 Bcf in outages with almost two-thirds of
that total occurring in September.

EIA forecasts gross pipeline imports of 9.2 Bcf/d in 2010, an
increase of 1.3 percent from 2009. Forecasted imports of liquefied
natural gas (LNG) average 1.25 Bcf/d in 2010 and 1.32 Bcf/d in 2011.
Low U.S. prices have discouraged imports, and ample domestic natural gas
production has reduced the need for large quantities of LNG despite
significantly higher consumption.

U.S. Natural Gas Inventories.

On August 27, working natural gas in storage was 3,106 Bcf (U.S.
Working Natural Gas in Storage Chart), which is 208 Bcf less than the
previous year’s level and 169 Bcf greater than the 5-year (2005-2009)
average. Weekly U.S. natural gas inventory builds this year have fallen
below last year’s builds in 16 of the last 18 weeks. This was primarily
the result of the very warm summer and the resulting increase in natural
gas consumption in the power generation sector. EIA expects working gas
inventories in the United States to total 3,687 Bcf at the end of the
injection season, about 3 percent below the record level reached at the
end of the injection season last year.

U.S. Natural Gas Prices.

The Henry Hub spot price averaged $4.32 per MMBtu in August, $0.31
per MMBtu lower than the average spot price in July. EIA expects prices
will fall below $4 per MMBtu in September and October before rebounding
at the onset of colder weather. EIA now expects prices will average
$4.76 per MMBtu in 2011; this is a downward revision from the $4.98 per
MMBtu forecast in last month’s Outlook.

Uncertainty over future natural gas prices is lower this year
compared with last year at this time. Natural gas futures for November
2010 delivery for the 5-day period ending September 2 averaged $4.07 per
MMBtu, and the average implied volatility over the same period was 48
percent. This produced lower and upper bounds for the 95-percent
confidence interval of $2.84 and $5.83 per MMBtu, respectively. At this
time last year, the natural gas November 2009 futures contract averaged
$3.89 per MMBtu and implied volatility averaged 75 percent. The
corresponding lower and upper limits of the 95-percent confidence
interval were $2.22 and $6.81 per MMBtu.

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

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