Monthly average natural gas spot prices at the Henry Hub are likely to remain below $3/MMBtu through the winter, average $3.05/MMBtu in 2015, and average $3.47/MMBtu in 2016, all below previous forecasts, the Energy Information Administration (EIA) said Tuesday.
Henry Hub natural gas spot prices averaged $2.99/MMBtu last month, down 49 cents from December and the first sub-$3 month since September 2012, EIA said in its latest Short-Term Energy Outlook.
"Natural gas prices are expected to stay low through this winter and early spring as ample inventories and continued growth in domestic gas production put downward pressure on prices," said EIA Administrator Adam Sieminski. Lower prices for natural gas this year will contribute to increased consumption of gas at power plants and, despite electricity demand projected to grow 5.5% compared with 2014, coal consumption for power generation will decline, Sieminski said.
In its previous STEO, EIA's Henry Hub spot price forecast was $3.52/MMBtu for the winter, $3.44/MMBtu for 2015, and $3.86/MMBtu for 2016 (see Daily GPI, Jan. 13). And just a month before that, EIA was estimating that Henry Hub spot prices would average $3.98/MMBtu this winter and $3.83/MMBtu in 2015 (see Daily GPI, Dec. 9, 2014).
Natural gas futures prices for May 2015 delivery (for the five-day period ending Feb. 5) averaged $2.71/MMBtu. Current options and futures prices imply that market participants place the lower and upper bounds for the 95% confidence interval for May 2015 contracts at $1.79/MMBtu and $4.11/MMBtu, respectively. At this time last year, the natural gas futures contract for May 2014 averaged $4.48/MMBtu and the corresponding lower and upper limits of the 95% confidence interval were $3.28/MMBtu and $6.13/MMBtu, EIA said.
EIA expects natural gas marketed production to increase 2.9 Bcf/d (3.8%) this year and 1.7 Bcf/d (2.2%) next year. "This increase reflects continuing strong production in the Lower 48 states, which more than offsets the long-term declining production in the Gulf of Mexico," the agency said. "Although natural gas prices have fallen dramatically in recent months, EIA expects that increases in drilling efficiency and growth in oil production (albeit at a slower rate) will continue to support growing natural gas production in the forecast. Additionally, preliminary data indicate freeze-offs modestly reduced production in January, but production has quickly recovered and growth continues."
Growing domestic production is expected to continue to lower demand for natural gas imports from Canada and increase 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. Liquefied natural gas (LNG) gross imports are forecast to average 0.2 Bcf/d in both 2015 and 2016, while LNG gross exports are estimated to double, from 0.04 Bcf/d in 2014 to almost 0.8 Bcf/d in 2016.
EIA expects total natural gas consumption to average 74.3 Bcf/d in 2015, up from an estimated 73.3 Bcf/d in 2014, and increase again to 75.2 Bcf/d in 2016. Growth is expected to be largely driven by the industrial and electric power sectors, while residential and commercial consumption is projected to decline in 2015 and again in 2016. Natural gas consumption in the power sector is expected to average 23.5 Bcf/d this year and 24.1 Bcf/d in 2016. Industrial sector consumption is projected to increase by 5.6% and 1.9% in 2015 and 2016, respectively, as new industrial projects come online, particularly in the fertilizer and chemicals sectors.
Natural gas working inventories totaled 2,428 Bcf as of Jan. 30, which is 469 Bcf greater than at the same time in 2014 and 29 Bcf lower than the previous five-year (2010-2014) average. "Following last year's extremely cold winter, inventories fell 1,000 Bcf below the five-year average in mid-April, but since then have consistently narrowed the gap," EIA said. The agency projects that end-of-March inventories will total 1,699 Bcf, 43 Bcf more than the five-year average.