UPDATE 2-US winter natgas use seen higher, plentiful supply

Tue Oct 5, 2010 6:46pm BST

* Gas demand up most for industry and electric utilities

* US gas production this year highest since 1973

* Winter temperatures to be 1 pct warmer than last year (Recasts, updates with gas storage levels, trade group official comment)

By Tom Doggett

WASHINGTON, Oct 5 (Reuters) - U.S. natural gas demand this winter is expected to rise 2.4 percent over last year but plentiful supplies will help keep prices down, an industry trade group forecast on Tuesday.

Gas demand will be up most in the electric utility and industrial sectors, rising 7 percent for utilities and 5 percent for industry, the Natural Gas Supply Association said in its annual winter forecast on Tuesday.

"We expect to see industrial demand coming back strong and we also expect to see coal-to-gas fuel switching persist through the winter, if prices remain competitive," said association President Skip Horvath.

Residential and commercial gas demand is expected to be lower than last year because households and businesses are likely to keep their thermostats turned down, as they try to keep spending in check amid a still sluggish economy.

Weather is the biggest factor that affects natural gas demand and prices. Government weather forecasters expect temperatures to be warmer than normal this winter for most of the southern half of the United States, with normal temperatures along the East Coast from Maine to Florida.

For the country as a whole winter temperatures are forecast to be 1 percent warmer than last year, when record snowstorms and cold blanketed most of the Northeast and mid-Atlantic states and parts of the South.

Total U.S. gas demand this winter should rise to an average 79.8 billion cubic feet per day from 77.9 billion cubic feet per day last year.

But U.S. gas production should be high, too, and large gas supplies from domestic gas production, liquefied gas imports and available inventories, should keep winter gas prices in check.

"There is enough supply coming on board to put downward pressure on prices over the winter," said Horvath.

The Energy Department estimates U.S. gas production this year still at more than 22 trillion cubic feet, its highest since 1973.

U.S. natural gas futures NGc1 peaked in January at $6.11 per million British thermal units, the highest price since the previous winter, and currently stand at $3.73 mmbtu.

If weekly gas storage builds match the five-year average, inventories will begin the heating season in November at about 3.7 trillion cubic feet (Tcf), or about 6 percent above normal.

Inventory withdrawals usually average about 2 Tcf during the November through March heating season, but last year, colder-than-normal winter weather burned nearly 2.2 Tcf of storage gas, or nearly 10 percent more than expected. (Reporting by Tom Doggett; additional reporting by Joe Silha in New York; Editing by David Gregorio)

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