Natural gas prices, which have sagged for some time, will continue their anemic performance into next year, according to the Energy Information Administration (EIA), which expects bloated storage and a relatively mild winter to negate hopes for an early uptick.
Monthly average Henry Hub spot prices are forecast to remain lower than $3/MMBtu through August 2016, and to average $2.67/MMBtu in 2015 and $2.88/MMBtu in 2016, according to EIA's latest Short-Term Energy Outlook (STEO). The 2016 price forecast is down 12 cents/MMBtu from EIA's previous STEO (see Daily GPI, Nov. 10).
The agency's price forecasts have declined steadily throughout 2015. At the beginning of the year, EIA projected 2015 Henry Hub prices to average $3.44/MMBtu and 2016 gas to average $3.86/MMBtu (see Shale Daily, Jan. 13).
Henry Hub prices averaged $2.09/MMBtu last month, a decrease of 25 cents from October, according to the STEO report. Natural gas futures prices for March 2016 delivery (for the five-day period ending Dec. 3) averaged $2.29/MMBtu.
Current options and futures prices imply that market participants place the lower and upper bounds for the 95% confidence interval for March 2016 contracts at $1.51/MMBtu and $3.45/MMBtu, respectively. At this time last year, the natural gas futures contract for March 2015 averaged $3.84/MMBtu and the corresponding lower and upper limits of the 95% confidence interval were $2.40/MMBtu and $6.13/MMBtu, EIA said.
On Nov. 20, natural gas inventories reached a record high 4,009 Bcf. EIA last week reported the season's first withdrawal at 53 Bcf for the week ending Nov. 27, somewhat stouter than market expectations (see Daily GPI, Dec. 3). Total Lower 48 storage stood at 3,956 Bcf, well above last year's 3,413 Bcf and more than the five-year average of 3,709 Bcf.
"U.S. natural gas inventories posted their first decline of the winter heating season in late November, but natural gas inventories at the end of December are expected to be the third highest ever for the month," said EIA Administrator Adam Sieminski. EIA is forecasting inventories at the end of March 2016 will be 1,862 Bcf, which would be 240 Bcf above the five-year average.
Total natural gas consumption is expected to average 76.7 Bcf/d next year, an increase from 73.1 Bcf/d in 2014 and up slightly from an estimated 76.5 Bcf/d this year. The agency projects gas consumption in the power sector to increase by 18.6% in 2015 compared to last, and then to decrease by 2.3% in 2016. Natural gas spot prices, which are expected to remain below $3/MMBtu through August 2016, support high consumption of natural gas for electricity generation next year, EIA said. Industrial sector consumption of natural gas,which EIA said remains flat this year, is expected to increase by 3.9% in 2016, while consumption in the residential and commercial sectors is projected to decline in both 2015 and 2016.
Total marketed natural gas production hit a record high of 81.1 Bcf/d in September, and EIA expects marketed production to average 79.6 Bcf/d this year (up 6.3% from 2014) and reach 81.1 Bcf/d in 2016. Increases in drilling efficiency will continue to support growing natural gas production, despite low prices and declining rig activity, the agency said. Most of the growth is expected to come from the Marcellus Shale as the backlog of uncompleted wells is reduced and new pipelines come online to deliver Marcellus gas to markets in the Northeast.