Temperatures across most of the United States during December, January and February will be roughly the same as last winter, but Henry Hub prices during the same months are expected to average $3.20/MMBtu, an 8% increase, according to the Energy Information Administration (EIA).
"This higher Henry Hub price reflects increased natural gas use in the electric power sector, growing natural gas exports from liquefied natural gas (LNG) liquefaction facilities, and lower-than-average inventory levels," EIA said in a Winter Fuels Outlook released Wednesday.
EIA's forecast of average Henry Hub prices for this year and next remains steady at $2.99/MMBtu and $3.12/MMBtu. Both price forecasts, found in a Short-Term Energy Outlook (STEO) EIA also released Wednesday, are unchanged from last month.
New York Mercantile Exchange contract values for January 2019 delivery traded during the five-day period ending Oct. 4 suggest a price range of $2.22-4.85/MMBtu, encompassing the market expectation of Henry Hub prices in January at the 95% confidence level, EIA said.
The front-month natural gas futures contract for delivery at Henry Hub settled at $3.17/MMBtu on Oct. 4, an increase of 34 cents/MMBtu from Sept. 4. The Henry Hub natural gas spot price averaged $2.99/MMBtu in September, 3 cents/MMBtu higher than in August, and on Sept. 24, futures prices rose to more than $3/MMBtu for the first time since June 2018.
"Prices for natural gas futures contracts for October delivery generally trade at a lower price than contracts for January delivery, when natural gas demand is expected to be much greater. This year, however, the discount of the October contract to the January contract was at its lowest in the past five years," EIA said.
EIA expects inventories will total 3.3 Tcf at the end of October, which would be 14% lower than both the 2017 end-of-October level and the five-year average for the end of October, and would mark the lowest end-of-October level since 2005.
"With normal weather, it could be down to 1.55 Tcf in March 2019," said Eric Lee, senior energy analyst at Citi Research, during a joint EIA/National Association of State Energy Officials webcast Wednesday. "However, this is sort of a particularly tight winter...once you get through this winter, there are a lot of downside risks. Supply in the U.S. of natural gas is likely to replenish these inventories pretty handily by October 2019, back up to 3.7-plus Tcf, or even higher, with $2.70 natural gas."
Last week EIA reported a larger-than-expected 98 Bcf storage injection, bringing total Lower 48 natural gas storage to 2,866 Bcf, which was 17% below the five-year average and 18% less than the 2,768 Bcf in storage at the same time last year.
Total U.S. dry natural gas production in September reached an estimated 85.1 Bcf/d, 9.3 Bcf/d higher than year-ago levels and a record high. "Compared with historical levels, front-month natural gas futures prices during this period of production growth have remained steady and not experienced a decline with increased production, likely because of lower-than-average inventory levels," EIA said. The agency expects dry natural gas production will average 82.7 Bcf/d in 2018, up by 7.9 Bcf/d from 2017 and also a record high. EIA expects natural gas production will continue to rise next year to an average of 87.7 Bcf/d.
"High use of natural gas for electric power generation through the summer months did not allow for sufficiently high injections to compensate for the low inventory level on April 1, the traditional start of the injection season. From June through September, natural gas used for power generation and for LNG exports reached record high levels,” EIA said. “Natural gas production also rose to record levels, but the high demand prevented inventory levels from rising sufficiently to account for the initial deficit relative to the five-year average, which reached 607 Bcf as of Sept. 28.
“The tighter natural gas market this summer contributed to a narrower spread between the October and January natural gas futures prices, which averaged 16 cents/MMBtu during the month of September, compared with a range of a 20-40 cent/MMBtu discount over the past five years."