Relatively low storage levels, robust domestic consumption and growing export levels are propping up Henry Hub prices, which are expected to average $2.99/MMBtu this year and $3.12/MMBtu in 2019, slightly higher than previously forecast, according to the Energy Information Administration (EIA).
Both price forecasts, found in EIA's latest Short-Term Energy Outlook (STEO), are up marginally from last month, when the agency said it expected 2018 Henry Hub prices to average $2.96/MMBtu and upward pressure to push average prices to $3.10/MMBtu in 2019.
New York Mercantile Exchange contract values for December 2018 delivery traded during the five-day period ending Sept. 6 suggest a price range of $2.31-3.77/MMBtu, encompassing the market expectation of Henry Hub prices in December at the 95% confidence level, EIA said.
The front-month natural gas futures contract for delivery at Henry Hub settled at $2.77/MMBtu on Sept. 6, an increase of 1 cent/MMBtu from Aug. 1.
"The Henry Hub natural gas spot price averaged $2.96/MMBtu in August, 12 cents/MMBtu higher than in July," EIA said. "Cooling degree days in the United States averaged 13% higher than the 10-year (2008-2017) average in August, which contributed to high natural gas demand for power generation."
Natural gas inventories have been low this year compared to the five-year (2013-2017) average, reflecting relatively high residential and commercial gas consumption early in the year and growth in both liquefied natural gas and pipeline exports throughout the year, according to EIA.
Last week, EIA reported a 63 Bcf build, growing natural gas inventories to 2,568 Bcf/d, which was 643 Bcf below the same time a year earlier and 590 Bcf below the five-year average. EIA is forecasting that natural gas inventories will reach 3,308 Bcf by the end of October, which would be the lowest end-of-October inventory level since 2005.
"Despite low inventory levels, price increases have been moderate,” EIA said. “Significant month-over-month production growth in 2018 helped keep futures prices lower than $3/MMBtu for most of the summer.
“Total U.S. dry natural gas production reached an estimated 82.2 Bcf/d in August. Implied volatility, which is based on futures and options, has also remained low, indicating lower expectations by market participants for large price increases in the near future.”
EIA expects the share of total U.S. utility-scale electricity generation from gas-fired power plants to increase to 34% this year and 35% next year, compared with 32% in 2017. Coal's share of electricity generation, which was 30% last year, is expected to decrease to 28% in 2018 and 27% in 2019.