EIA May Underestimate Gas Demand


"Land drilling activity both in the U.S. and abroad continues to move higher."

The EIA may be underestimating natural gas demand with much of the U.S. South and Northeast enveloped in yet another round of cold weather that boosted gas and electricity demand in January through early February, said Adam Sieminski, chief energy economist, Deutsche Bank.

The March natural gas contract climbed 10.4 to $5.40/MMbtu Feb. 11 on the NYMEX, "the largest 1-day gain since the beginning of the month," on "a drop in jobless claims, indicating industrial demand, which accounts for 29% of US [gas] consumption, is likely improving, and cold temperatures across the U.S. likely resulting in higher residential demand," said analysts at Pritchard Capital Partners LLC in New Orleans.

On the U.S. spot market that same day, gas at Henry Hub gained 3 to $5.51/MMbtu. Gas prices continued rising to $5.47/MMbtu in the Feb. 12 session on NYMEX and to $5.55/MMbtu at Henry Hub as continued snowfall buried parts of the Northeastern U.S. and the Mid-Atlantic states.

Data indicate a mini-spike in electric utility gas use during January before dropping off in February and March. Similarly, residential use in the EIA forecast is shown lower in 1Q10 than the similar period in 2009. "Could the EIA be underestimating gas demand?" Sieminski asked. "News reports this week show a severe and very unusual winter snowstorm across the South. This appears to be the same type of weather pattern that caused the unusual rise in electric utility gas use in January. . .March might also be exceptionally cold across a large section of the central U.S."

Analysts at Pritchard Capital Partners LLC said, "Land drilling activity both in the U.S. and abroad continues to move higher. The outlook for natural gas over the next 12 months, specifically in the U.S., is highly debatable."

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