Total U.S. crude oil production averaged an estimated 8.9 million b/d in October, and monthly average production is forecast to surpass 9.0 million b/d in December and 9.4 million b/d in 2015, which would be the highest annual average crude oil production since 1972, according to the Energy Information Administration (EIA).
Natural gas working inventories at the start of the 2014-2015 heating season may be lower than last year, but EIA still expects Henry Hub spot prices to average $3.97/MMBtu this winter, down more than 12% compared with $4.53/MMBtu in winter 2013-2014.
Natural gas prices will be dragged down by both lower heating demand and significantly higher gas production this winter, EIA said in its latest Short-Term Energy Outlook (STEO).
The Henry Hub spot price averaged $3.78/MMBtu in October, a decline of 14 cents from September. EIA expects spot prices to remain relatively low but to rise slightly with winter heating demand, and projected Henry Hub prices to average $4.44/MMBtu in 2014 and $3.83/MMBtu in 2015.
In its previous STEO, EIA said it expected spot prices to remain below $4.00/MMBtu through November, before rising with winter heating demand to average $4.45/MMBtu in 2014 and $3.84/MMBtu in 2015 (see Daily GPI, Oct. 7).
Gas futures prices for February 2015 delivery (for the five-day period ending Nov. 6) averaged $4.19/MMBtu. Current options and futures prices imply that market participants place the lower and upper bounds for the 95% confidence interval for February 2015 contracts at $2.76/MMBtu and $6.38/MMBtu, respectively.
At this time last year, the natural gas futures contract for February 2014 averaged $3.57/MMBtu and the corresponding lower and upper limits of the 95% confidence interval were $2.70/MMBtu and $4.73/MMBtu, EIA said
"The U.S. heating season began this month with ample natural gas inventories of almost 3.6 Tcf, after average gas injections into storage exceeded the five-year average for 29 straight weeks," said EIA Administrator Adam Sieminski. "A record 2.7 Tcf of natural gas was put into storage by the start of the U.S. heating season this month."
Last week, EIA reported a 91 Bcf injection into storage for the week ended Oct. 31, bringing inventories to 3,571 Bcf (see Daily GPI,Nov. 6). That's 238 Bcf less than last year and 261 Bcf below the five-year average.
"The injection season began somewhat slowly in April, but has continued at a strong pace, with injections above the five-year average throughout most of the injection season," EIA said. "The deficit to the five-year average and to last year's level has narrowed over the injection season with substantial weekly stock builds. Heading into next summer, EIA projects that end-of-March 2015 inventories will total 1,562 Bcf, 94 Bcf below the five-year (2010-14) average."
EIA said it expects natural gas marketed production to grow by an annual rate of 4.8% in 2014 and 2.3% in 2015, with continued strong increases in the Lower 48 states offsetting declines in the Gulf of Mexico. Dry natural gas production was 3.4 Bcf/d greater in August 2015 than in August 2014, according to EIA.
"Production usually declines in September; however, preliminary data indicate that growth has continued, with new production offsetting maintenance declines," EIA said.
Growing domestic production is expected to continue to put downward pressure on natural gas imports from Canada and spur exports to Mexico. Exports to Mexico, particularly from the Eagle Ford Shale in South Texas, are expected to increase because of growing demand from Mexico's electric power sector and flat Mexican production.
Natural gas plant liquids production is expected to increase from an average of 2.6 million b/d in 2013 to 3.2 million b/d in 2015.
EIA expects total natural gas consumption to average 73.2 Bcf/d in 2014, an increase of 2.2% from 2013, with the industrial sector leading the growth. In 2015, total projected gas consumption is expected to be flat, "as continued industrial sector growth and higher electric power sector consumption offset lower residential and commercial consumption," EIA said. Higher gas prices this year contribute to a 1.7% decline in consumption in the power sector to 22.0 Bcf/d this year. EIA said it expects consumption in the power sector to increase to 22.7 Bcf/d next year.