Strong growth in U.S. natural gas production in 2019 will outweigh low inventory levels and put downward pressure on prices, resulting in an average Henry Hub spot price of $3.11/MMBtu for the year, 6 cents below the 2018 average, according to the Energy Information Administration (EIA).
The price forecast, included in EIA's latest Short-Term Energy Outlook (STEO), is up 13 cents/MMBtu compared with the $2.98/MMBtu prognostication in the previous STEO.
New York Mercantile Exchange contract values for March 2019 delivery traded during the five-day period ending Dec. 6 suggest a price range of $1.85-8.37/MMBtu, encompassing the market expectation of Henry Hub prices in March at the 95% confidence level, EIA said.
The front-month natural gas futures contract for delivery at Henry Hub settled at $4.33/MMBtu on Dec. 6, an increase of $1.09 from Nov. 1.
The Henry Hub natural gas spot price averaged $4.15/MMBtu in November, 87 cents higher than in October, with cold weather and low inventory levels contributing to the increase, EIA said.
"Prices rose substantially in the first half of November because of high natural gas demand for heating and power generation,” EIA said. “Cold weather across the Lower 48 states in mid-November increased natural gas demand in the residential and commercial sectors.
“Heating degree days reached 14% above normal, the coldest November in the United States in four years. The higher demand contributed to several early-season withdrawals, which kept storage levels low heading into winter and put upward pressure on prices.”
Last week, EIA reported 2,991 Bcf in storage, a 63 Bcf withdrawal from the prior week, a 704 Bcf decline compared with the same time last year and 725 Bcf below the five-year average.
"Concerns about low storage levels with winter weather approaching contributed to an increase in volatility in natural gas futures prices," EIA said. "Natural gas implied volatility averaged 77% in November, much higher than the five-year range and the highest volatility in November in 17 years.
"In contrast, implied volatility reached the lowest levels ever recorded for the natural gas front-month contract during the summer, but it re-emerged at the end of this year's injection season when inventories remained lower than historical levels. Throughout November, the increasing storage deficit to the five-year average, along with forecasts of colder temperatures, likely contributed to the increase in implied volatility."
EIA expects dry natural gas production will average a record high 83.3 Bcf/d in 2018 and continue to rise next year to an average of 90.0 Bcf/d.