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EIA Henry Hub NatGas Price Forecast Slips Again: $3.10 This Year, $3.40 in 2018

For a second consecutive month, the Energy Information Administration's (EIA) has lowered its natural gas price forecast, saying it expects Henry Hub spot prices to average $3.10/MMBtu this year and $3.40/MMBtu next year.

Those price forecasts, including in EIA's latest Short-Term Energy Outlook (STEO), are both down from last month, when EIA forecast prices averaging $3.16/MMBtu this year and $3.41/MMBtu in 2018. The May STEO included forecasts of $3.17/MMBtu in 2017 and $3.43/MMBtu next year.

"Henry Hub spot prices have been relatively flat in 2017, averaging $3.04/MMBtu during the first half of the year, which is the same as the fourth quarter of 2016 average price," EIA said. "Prices averaged $2.98/MMBtu in June. Closer-to-normal winter temperatures are expected this winter following last year's warm winter, which contributes to growth in residential and commercial consumption.

“Also, export growth is forecast to increase in the second half of 2017 and in 2018. Both factors could contribute to modest upward price pressure."

The front-month natural gas contract for delivery at Henry Hub declined 12 cents/MMBtu from June 1, settling at $2.89/MMBtu on July 6, EIA said.

New York Mercantile Exchange contract values for October 2017 delivery traded during the five-day period ending July 6 suggest a price range of $2.17/MMBtu to $4.08/MMBtu encompassing the market expectation of Henry Hub natural gas prices in October 2017 at the 95% confidence level, EIA said.

For the week ending June 30, EIA reported a storage build of 72 Bcf for the week ending May 26, and working gas in storage stood at 2,888 Bcf, compared with 2,816 Bcf at the same time last year and the five-year average of 2,701 Bcf.

Last November, EIA reported record high natural gas inventories of 4,047 Bcf, but stocks aren't expected to reach such lofty levels again this year.

"Inventory builds have been slightly below average thus far during the injection season, and EIA expects inventories to be 3,940 Bcf at the end of October 2017, which would be 2% higher than the five-year average level for the end of October but 2% lower than the 2016 end-of-October level," according to the STEO.

EIA estimated that dry natural gas production averaged 72.5 Bcf/d in June, up 0.9 Bcf/d from the year-ago level, and it expects production to rise through 2018 in response to forecast price increases and large increases in liquefied natural gas (LNG) exports.

Overall, EIA expects dry natural gas production to rise by 1.4% (1.0 Bcf/d) in 2017 and by 4.3% (3.1 Bcf/d) in 2018.

Natural gas pipeline exports to Mexico have risen this year, and EIA expects that growth to continue as Mexico undergoes energy market reform.

"A relatively cheap natural gas export price, rising demand from Mexico, and increased pipeline takeaway capacity in both in the United States and Mexico have led to higher exports," EIA said. "Gross pipeline exports are expected to increase by 0.9 Bcf/d in 2017 and by 0.5 Bcf/d in 2018 to an average of 7.3 Bcf/d."

EIA is projecting U.S. LNG gross exports will average 1.9 Bcf/d this year, up from 0.5 Bcf/d in 2016.

"By the end of 2017, Trains 1 through 4 at Cheniere's Sabine Pass facility in Louisiana are expected to be fully operational, and Cove Point LNG in Maryland is expected to come online. EIA projects gross LNG exports to average 2.8 Bcf/d in 2018, as Sabine Pass and Cove Point ramp up capacity and two new LNG facilities come online," EIA said.

"Cameron LNG Train 1 is scheduled to come online in July, followed by Train 2 in November, and Freeport LNG is scheduled to come online in November. Both facilities are along the U.S. Gulf Coast.

“Cameron LNG Trains 1 and 2 will add 1.1 Bcf/d of new liquefaction capacity, and Freeport Train 1 will add 0.7 Bcf/d of new capacity. The new Cameron and Freeport liquefaction facilities will require a few months to ramp up and are projected to operate below nameplate capacity in 2018."

EIA has said it expects that the United States will become a net exporter of natural gas on average this year, with net exports expected to average 0.4 Bcf/d. As LNG exports increase, 2018 net exports are forecast to be 1.3 Bcf/d. 

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