Unusually cold temperatures will push prices higher in the year's closing weeks, but demand declines and slowing U.S. natural gas export growth will have Henry Hub spot prices averaging just $2.48/MMBtu in 2020, according to the Energy Information Administration (EIA).
The 2020 price forecast, included in EIA's latest Short-Term Energy Outlook (STEO), which was issued Wednesday, is down 4 cents from its previous STEO and would be 13 cents below the 2019 average, EIA said.
"The Henry Hub natural gas spot price averaged $2.33/MMBtu in October, down 23 cents/MMBtu from September," EIA said. "The decline largely reflected strong inventory injections. However, forecast cold temperatures across much of the country caused prices to rise in early November, and EIA forecasts Henry Hub prices to average $2.73/MMBtu for the final two months of 2019...
"Lower forecast prices in 2020 reflect a decline in U.S. natural gas demand and slowing U.S. natural gas export growth, allowing inventories to remain higher than the five-year average during the year even as natural gas production growth is forecast to slow."
EIA reported a surprisingly lean 34 Bcf injection into storage for the week ending Nov. 1, which left total Lower 48 working gas in underground storage at 3,729 Bcf -- 530 Bcf (16.6%) above year-ago stocks and 29 Bcf (0.8%) higher than the five-year average.
"Natural gas storage injections in the United States outpaced the previous five-year (2014-18) average during the 2019 injection season as a result of rising natural gas production," the agency said. "At the beginning of April, when the injection season started, working inventories were 28% lower than the five-year average for the same period. By October 31, U.S. total working gas inventories reached 3,762 Bcf, which was 1% higher than the five-year average and 16% higher than a year ago."
EIA expects storage withdrawals to total 1.9 Tcf between the end of October and the end of March, which is less than the previous five-year average winter withdrawal and would leave end-of-March inventories at almost 1.9 Tcf, 9% higher than the five-year average.
The front-month natural gas futures contract for December delivery at the Henry Hub settled at $2.77/MMBtu on Nov. 7, an increase of 49 cents/MMBtu from Oct. 1. "Natural gas futures prices traded in a narrow range for most of October, then rose substantially at the end of the month after weather forecasts indicated much colder temperatures for early November," EIA said. "However, despite the increase at the end of October, the monthly average front-month futures price was the lowest for any October since 1998."
Dry natural gas production is expected to remain strong through the end of 2019, reaching an average 92.1 Bcf/d for the year, a 10% increase from the 2018 average. However, production growth has been slowing in the United States, according to EIA, and will grow much less in 2020 due to the lag between changes in price and changes in future drilling activity. Domestic production is expected to average 94.9 Bcf/d in 2020.
EIA expects U.S. liquefied natural gas (LNG) exports to average 4.7 Bcf/d in 2019 and 6.4 Bcf/d in 2020 as new liquefaction projects come online. The list of exporting facilities from January to June included Sabine Pass LNG and Cameron LNG, both in Louisiana; Corpus Christi LNG in Texas; and Cove Point LNG in Maryland. Thus far in the back half of 2019, that list has grown to include Freeport LNG in Texas and Elba Island LNG in Georgia. Total U.S. LNG export capacity is expected to reach 8.9 Bcf/d by the end of the year, according to EIA.
"Natural gas deliveries to LNG projects set a new record high in July, averaging 6.0 Bcf/d, and increased further to 6.6 Bcf/d in October, when new trains at Cameron and Freeport began ramping up," the agency said.