Continuing strong growth in domestic natural gas production will keep downward pressure on prices this year and next, with Henry Hub prices expected to average $2.77/MMBtu in 2019 and in 2020, according to the Energy Information Administration (EIA).
The latest 2019 price forecast, included in a Short-Term Energy Outlook (STEO) released by EIA Tuesday, would be a 38-cent/MMBtu decline compared with 2018, and is 5 cents/MMBtu lower than the agency’s previous STEO.
In April and May, “ongoing increases in natural gas production contributed to record injections into natural gas storage, which, combined with forecasts of below-normal temperatures for June, have lowered price expectations,” EIA said. “The natural gas front-month futures price on June 6 of $2.32/MMBtu was the lowest since May 2016.”
Last week EIA reported a 119 Bcf build into storage inventories for the week ending May 31. The build compared with a 93 Bcf injection last year and the five-year 102 Bcf average build. EIA estimated that inventories stood at 1,986 Bcf, compared with 1,804 a year ago and a five-year average of 2,226 Bcf.
EIA expects natural gas storage injections will outpace the previous five-year average during the April-through-October injection season and that inventories will reach almost 3.8 Tcf at the end of October, which would be 17% higher than October 2018 levels and about equal to the five-year average.
The Henry Hub spot price averaged $2.64/MMBtu in May, almost unchanged from April, according to EIA.
The front-month natural gas futures contract for delivery at Henry Hub settled at $2.32/MMBtu on June 6, a decrease of 30 cents from May 1, according to the STEO, and EIA estimates that gas production surged to a record high in May.
“This persistent production growth contributed to injections of more than 100 Bcf for five of the past six weeks, bringing U.S. working gas in underground storage levels closer to the five-year average, 9% higher than year-ago levels,” EIA said. “Combined net injections into storage during April and May, in 2019, are estimated to be the largest on record for that two-month period at 831 Bcf, which helped to reduce futures prices even though inventories remain lower than the five-year average.”
Robust domestic output is expected to continue, with dry gas production forecast to average 90.6 Bcf/d this year, up 7.2 Bcf/d compared with 2018. And EIA expects gas production will continue to grow in 2020, though at a slower rate, averaging 91.8 Bcf/d for the year.