Expectations for a mild winter combined with strong natural gas production, robust storage and an anticipated small decrease in overall gas demand mean this winter will be "neutral" for pressure on gas prices, the Natural Gas Supply Association (NGSA) said Wednesday.
For its 15th annual Winter Outlook, the trade association relied on work by Energy Ventures Analysis (EVA) for its assessment.
"When NGSA weighed all the different factors, the picture that emerged for the upcoming winter is one of a flexible natural gas market that is able to respond to changes in weather and customer demand with abundant production and storage. We anticipate neutral pressure on prices compared to last winter," said NGSA Chairman Bill Green, who is also vice president for downstream marketing at Devon Energy Corp.
EVA projects a slight decrease in overall demand compared to last winter (when gas prices at Henry Hub averaged $3.21/MMBtu), mainly because the forecasted 7% warmer winter is predicted to decrease demand from the residential and commercial sectors by 2.5 Bcf/d on average.
Growing demand from power generators will take up some of the slack, though. Winter-over-winter demand growth of 1.1 Bcf/d, about 5%, in the power sector will partially offset the decline in residential/commercial demand. Fuel-switching to natural gas from higher-cost fuels will account for most of the demand increase, EVA and NGSA said. EVA forecasts winter fuel-switching of 5.6 Bcf/d.
"We anticipate temporary fuel-switching to natural gas to reach near-record levels this winter," Green said. "The winter record of 6 Bcf/d of coal-to-gas switching was set in winter 2011-2012. In fact, in 2012 natural gas generation displaced so much coal-fired generation that carbon dioxide emissions reached a 20-year low."
And then there has been a more permanent shift to natural gas-fueled power generation in recent years due to the retirement of coal-fired plants, particularly in order to comply with the Environmental Protection Agency's Mercury and Air Toxics Standards rule.
EVA is expecting a 0.2 Bcf/d demand increase in the industrial sector, which at less than 1% is smaller than usual for winter. There has been slower winter-over-winter growth in the sector of just 0.7% across the entire manufacturing sector due to a lack of global economic growth and a strong dollar.
Despite the slowing manufacturing sector, the natural gas-intensive petrochemical, fertilizer and steel industries continue to drive natural gas demand with 66 capacity expansions and new builds planned for the 2015-2020 time period, consuming an estimated 3.9 Bcf/d more of natural gas annually by 2020, EVA found.
The first exports of liquefied natural gas aren't expected to happen until December when Cheniere Energy Inc. begins export operations at its Sabine Pass terminal in Louisiana. "LNG exports will grow, but they will remain a small slice of overall demand in the next years," Green said. "Exports to Mexico are expected to increase to 3.2 Bcf/d this winter with the construction of new Mexican pipelines."
The outlook for supply this winter is robust, EVA found, as record production is expected.
The shale revolution has ushered in a remarkable era, as evidenced by dramatic growth in production over the last eight years," Green said. "This winter's supply is expected to be robust because of drilling efficiencies and new infrastructure coming online to move natural gas out of producing shale areas.
"Since the onset of shale production on a large scale, we've had year after year of stability for consumers."