Henry Hub natural gas spot prices are likely to average $3.07/MMBtu this year and $3.48/MMBtu next year, according to the Energy Information Administration (EIA), levels lower than anyone would have expected two years ago, but slightly higher than EIA's previous forecast.
Last month, the agency said it expected monthly average natural gas spot prices at the Henry Hub to remain below $3.00/MMBtu through the winter, average $3.05/MMBtu in 2015, and average $3.47/MMBtu in 2016 (see Daily GPI, Feb. 10). EIA's spot price forecasts had been on the decline for some time. In January, the agency predicted $3.44/MMBtu for 2015 and $3.86/MMBtu for 2016 (see Daily GPI, Jan. 13); in December it estimated that Henry Hub spot prices would average $3.83/MMBtu in 2015 (see Daily GPI, Dec. 9, 2014).
Henry Hub prices averaged $2.87/MMBtu last month, down 12 cents from January, EIA said in its latest Short-Term Energy Outlook (STEO). Natural gas futures prices for June 2015 delivery (for the five-day period ending March 5) averaged $2.83/MMBtu. Current options and futures prices imply that market participants place the lower and upper bounds for the 95% confidence interval for June 2015 contracts at $1.92/MMBtu and $4.18/MMBtu, respectively. At this time last year, the natural gas futures contract for June 2014 averaged $4.55/MMBtu and the corresponding lower and upper limits of the 95% confidence interval were $3.51/MMBtu and $5.90/MMBtu, EIA said.
Marketed natural gas production overcame declining prices and falling rig counts at the end of 2014, hitting a record high of 78.8 Bcf/d in December. EIA expects natural gas marketed production to increase 3.7 Bcf/d (5.0%) this year and 1.6 Bcf/d (2.2%) next year, reflecting continuing production growth in the Lower 48, which the agency said would more than offset long-term declining production in the Gulf of Mexico.
"Although natural gas prices have fallen dramatically in recent months, EIA expects that increases in drilling efficiency and growth in oil production (albeit at a slower rate) will continue to support growing natural gas production in the forecast," the agency said. "With most growth expected to come from the Marcellus Shale, a backlog of drilled but uncompleted wells will continue to support production growth, as new pipelines come online in the Northeast."
Increasing domestic gas production is expected to reduce demand for imports from Canada and support increased exports to Mexico, particularly from the Eagle Ford Shale.
"Liquefied natural gas (LNG) imports have fallen over the past five years because higher prices in Europe and Asia are more attractive to LNG exporters than the relatively low prices in the United States," EIA said. The agency expects LNG gross imports to average 0.2 Bcf/d in both 2015 and 2016, while LNG gross exports are forecast to increase from an average of 0.04 Bcf/d in 2014 to almost 0.8 Bcf/d in 2016.
EIA expects total natural gas consumption to average 75.7 Bcf/d in 2015, up from an estimated 73.5 Bcf/d in 2014, and increase again to 76.2 Bcf/d in 2016. Growth is expected to be largely driven by the industrial and electric power sectors, while residential and commercial consumption is projected to decline in 2015 and again in 2016. Natural gas consumption in the power sector is expected to increase by 8.1% this year and by 1.9% in 2016. Industrial sector consumption is projected to increase by 6.6% and 2.1% in 2015 and 2016, respectively, as new industrial projects come online, particularly in the fertilizer and chemicals sectors.
Natural gas working inventories totaled 1,710 Bcf as of Feb. 27, which is 492 Bcf greater than at the same time in 2014 and 143 Bcf lower than the previous five-year (2010-2014) average. The agency projected that end-of-March inventories will total 1,587 Bcf, close to the five-year average and 730 Bcf more than at the end of March 2014.