Based on projections of flat natural gas demand, record production and unseasonably warm weather, natural gas prices this winter are expected to be flat compared with a year ago, when Henry Hub prices averaged $3.47/MMBtu, according to the Natural Gas Supply Association's (NGSA) 13th Annual Winter Outlook.
"When all key supply and demand factors are combined, we expect neutral pressure on prices compared to last winter," said NGSA Chairman Greg Vesey, who is Chevron Corp.'s vice president of Gas Supply and Trading, last Wednesday. "However regions with infrastructure constraints are vulnerable to short periods of upward pressure on prices, as we've seen occasionally in the Northeast during severe cold weather in recent years."
Other "wild card" market factors that could significantly affect NGSA's Winter Outlook are unexpected cold -- or warm -- snaps; unforeseen decline in demand for oil and natural gas liquids, which would trigger a decline in associated gas from oil wells; higher-than-expected gas consumption by the power sector; and a U.S. debt ceiling crisis, if it materializes.
According to an independent analysis performed by Energy Ventures Analysis (EVA) that was commissioned by NGSA, associated gas produced from oil wells will take up any slack from a decreased number of completed gas wells this year.
Production is projected to be slightly higher this winter at 65.7 Bcf/d compared with 65.1 Bcf/d last winter, although well completions are expected to be only 6,400 this years compared to 8,900 in 2012. "High natural gas production despite fewer well completions can...be attributed to the significant amount of natural gas being produced from oil wells," known as associated gas, EVA said. Associated gas is projected to account for 8% of U.S. supply this winter.
The overall demand level this winter (83.3 Bcf/d) will almost mirror last winter (83.1 Bcf/d) because of similar weather and economic conditions. Residential and commercial demand is expected to be flat to last winter, but demand from the electric sector is likely to fall 0.5 Bcf/d to 19.1 Bcf/d.
Although EVA projects the historic five-year trend of electric utilities dispatching natural gas-fired power plants rather than coal-fired plants to continue, it will be at a slightly lower level than last winter, the NGSA outlook noted.
Coal-to-gas switching is expected to continue for a sixth straight winter, but switching is forecast to average 4.2 Bcf/d rather than last winter's near-record amounts.
However, gas demand from the industrial sector is expected to grow 3.5% year/year to 22 Bcf/d during the 2013-2014 heating season from 21.3 Bcf/d. EVA's analysis points to sustained healthy growth in industrial demand over the remainder of the decade, as the petrochemical, fertilizer, steel and gas-to-liquids industries begin construction on scores of major gas-intensive projects.
In its Winter Fuel Outlook released last Tuesday, the American Gas Association (AGA) projected that utility bills for residential delivered natural gas this winter would not increase by more than 5-10% compared with last winter, due to various market forces. Despite the anticipated slight rise in gas utility bills, natural gas will remain the most affordable heating option for most residential customers this winter, the AGA said.
Natural gas production in the Energy Information Administration's (EIA) Other States category, which includes Pennsylvania, Ohio and West Virginia -- and, with them, some of the nation's booming shale plays -- reached 26.37 Bcf/d in July, compared with 26.13 Bcf/d in June and 22.67 Bcf/d in July 2012, EIA said last week.
"Other States saw an increase of 0.9% or 0.24 Bcf/d primarily because of new wells in the Marcellus Shale," EIA said.
The Other States category, which had traditionally accounted for less production than Texas, overtook the Lone Star state last year and in July outproduced Texas by 3.53 Bcf/d.
Lower 48 output in July was 74.52 Bcf/d, up from 72.71 Bcf/d in July 2012, and the U.S. total hit 82.32 Bcf in July, compared with 79.38 Bcf/d in July 2012, according to the latest EIA report.
Increases compared to July 2012 were also reported for New Mexico (3.76 Bcf, up from 3.61 Bcf/d), Oklahoma (5.91 Bcf/d, up from 5.50 Bcf/d), Texas (22.84 Bcf/d, up from 22.18 Bcf/d) and Alaska (7.80 Bcf/d, up from 6.67 Bcf/d).
Production from the Federal Offshore Gulf of Mexico was 3.55 Bcf/d in July, up compared with June (3.43 Bcf/d), but down significantly compared with July 2012 (4.18 Bcf/d). EIA also reported declines compared with July 2012 in Louisiana (6.42 Bcf/d, down from 8.47 Bcf/d) and Wyoming (5.67 Bcf/d, down from 6.10 Bcf/d).
EIA also issued revised production figures for several categories for June. Revised were the June production numbers for New Mexico (to 3.73 Bcf/d), Oklahoma (to 5.85 Bcf/d), Texas (to 22.46 Bcf/d), Lower 48 States (to 74.00 Bcf/d) and U.S. Total (to 81.81 Bcf/d).
"Overall, with the new data points, strong monthly production growths since April of this year indicate that lower-48 natural gas production remained on a robust upward trajectory, as we expected," according to Barclay's analysts Biliana Pehlivanova and Shiyang Wang.
"Production data for August and September are likely to show some weakness, as key parts of the country were affected by temporary disruptions such as widespread heavy pipeline and well maintenances, and the Colorado flooding. Fires at two processing plants in the Northeast have also curtailed production. We expect U.S. Lower 48 production to regain strength and maintain a growth trajectory once it recovers from these temporary disruptions," the analysts said.
Production from the eastern United States, including the powerhouse Marcellus Shale, will help make the country the world's top producer of natural gas this year, ahead of Saudi Arabia, EIA said in a separate report Friday. The United States will also surpass Russia to be the world's largest petroleum producer, the agency said.
"Since 2008, U.S. petroleum production has increased 7 quadrillion Btu, with dramatic growth in Texas and North Dakota," said EIA. "Natural gas production has increased by 3 quadrillion Btu over the same period, with much of this growth coming from the eastern United States. Russia and Saudi Arabia each increased their combined hydrocarbon output by about 1 quadrillion Btu over the past five years."