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Winter 2017-2018 May Boost NatGas Demand But Not Prices, NGSA Says

A colder winter this year than last is likely to create record-high demand for natural gas, but that won't be enough to push gas prices higher, according to the Natural Gas Supply Association (NGSA).

A 13% colder winter compared with winter 2016-2017 will create demand that would exceed even that of polar vortex winter of 2013-2014, NGSA predicted in its 17th annual Winter Outlook, which was released Wednesday. Total demand is expected to reach 92.3 Bcf/d, NGSA said. But "surging production, Canadian imports and robust storage inventories will ably satisfy demand, resulting in flat pressure on prices compared to last winter."

AccuWeather on Wednesday also predicted a chilly winter in the Northeast and Mid-Atlantic, with above-normal snowfall versus a year ago. With a weak La Nina predicted to develop this winter, the Northwest and the Rockies also are set to receive an abundance of precipitation.

Based on published data and independent analysis, NGSA's outlook evaluated the combined impact of weather, economic growth, customer demand, storage inventories, supply activity and recent hurricanes.

"The picture that emerged for the upcoming winter is of a natural gas market experiencing substantial growth in both demand and supply," said Scott Moore, chairman of NGSA and senior vice president at Anadarko Petroleum Corp.

"Record demand in the residential and commercial sector is primarily driven by colder weather, with a longer-term shift to natural gas in the electric and industrial sectors driven by competitive prices and environmental benefits."

The outlook forecasts electric sector demand for natural gas increasing by 1.6 Bcf/d compared with last winter due to colder weather and new gas-fired capacity replacing retiring coal-fired plants. Fuel switching is expected to continue for a ninth consecutive winter, albeit at a 9% lower level than last winter, NGSA said. Industrial demand is expected to increase 0.3 Bcf/d compared with last winter.

Pipeline exports to Mexico this winter are forecast to increase 0.4 Bcf/d compared with last winter and liquefied natural gas (LNG) exports are forecast to more than double to 2.8 Bcf/d, compared with 1.2 Bcf/d last winter.

"This marks the first full year that the United States is a net exporter of LNG, but the amount we are exporting remains small compared to our supply base and the total U.S. market," Moore said.

Production is also expected to increase this year, according to the outlook, growing about 8% (nearly 6 Bcf/d) compared with last winter.

The impacts of hurricanes Harvey in August and Irma in September were included in NGSA's outlook.

"Unlike the oil industry, there was not any significant damage to natural gas infrastructure" from the two storms, NGSA said. "Furthermore, for the most part, the recovery in natural gas production has been faster than initially anticipated. However, there is still some uncertainty over the full impact of the demand destruction caused by these hurricanes, which could have some impact on season ending storage levels."

Barclays Capital report this week that predicted upside price potential relative to the curve in 2018 and 2020 and significant downside risk in 2019. The coming winter may hold promise for natural gas bulls, but production is tracking to grow by about 19%, or 13 Bcf/d, from 2018 to 2020, leading to a bearish landscape for prices, even as demand rises for exports, power burn and the industrial sectors, Barclays analysts said.

NGSA's outlook was prepared by Energy Venture Analysis Inc.

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