Natural gas production growth and mild weather are allowing storage injections to continue on pace for a record refill of 2.6 Tcf by the end of October, according to the Energy Information Administration, which significantly lowered its gas price outlooks for both 2014 and 2015.
Natural gas spot prices, which fell to $3.78/MMBtu at the end of July after starting the month at $4.47/MMBtu, are expected to remain below $4.00/MMBtu through October before ramping up with winter heating demand, according to EIA's latest Short-Term Energy Outlook (STEO). The agency expects Henry Hub prices to average $4.46/MMBtu this year and $4.00/MMBtu next year. Both estimates are significantly lower than in the previous STEO, when EIA projected that Henry Hub natural gas prices would average $4.77/MMBtu this year and $4.50/MMBtu in 2015 (see Daily GPI, July 8).
Gas futures prices for November 2014 delivery (for the five-day period ending Aug. 7) averaged $3.96/MMBtu. Current options and futures prices imply that market participants place the lower and upper bounds for the 95% confidence interval for November 2014 contracts at $3.03/MMBtu and $5.16/MMBtu, respectively. At this time one year ago, the gas futures contract for November 2013 averaged $3.58/MMBtu and the corresponding lower and upper limits of the 95% confidence interval were $2.68/MMBtu and $4.79/MMBtu, EIA said.
EIA expects working gas stocks will reach 3,463 Bcf at the end of October, 353 Bcf lower than at the same time last year. Natural gas working inventories totaled 2,389 Bcf as of Aug. 1, which was 538 Bcf lower than the same time last year and 608 Bcf lower than the previous five-year (2009-2013) average. "The injection season began somewhat slowly in April but has continued at a strong pace, with injections averaging above the five-year average throughout most of the injection season," the agency said.
Production declines in the Gulf of Mexico will be offset by strong increases in the Lower 48, resulting in natural gas marketed production growing by an annual rate of 5.3% in 2014 and 2.1% in 2015, EIA said. Marketed production in May, the most recent month for which EIA data is available, was more than 4 Bcf/d greater than in May 2013.
The growth of domestic production is expected to continue to put downward pressure on natural gas imports from Canada, and increase exports to Mexico, EIA said. As a result, the agency projects net imports to decline to 3.3 Bcf/d in 2014 and to 2.6 Bcf/d in 2015.
EIA recently reported that U.S. dry natural gas production in May reached 2,166 Bcf, or 69.9 Bcf/d, the highest on record for any month (see Daily GPI,Aug. 1). In the first five months of this year, dry gas production totaled 10,370 Bcf, versus the first five months of 2013, when 9,927 Bcf was produced and the same period of 2012, when the total was 9,907 Bcf.
EIA expects total natural gas consumption will average 72.6 Bcf/d in 2014, an increase of 1.7% from 2013, led by the industrial sector. Higher gas prices this year will contribute to a 2.2% consumption decline in the power sector (to 21.8 Bcf/d), but lower prices and the retirement of some coal plants next year will boost consumption in the sector to 22.7 Bcf/d.