Domestic natural gas production will continue to outpace consumption in 2020, resulting in Henry Hub spot prices averaging only $2.33/MMBtu for the year, a 24-cent decline from the 2019 average of $2.57/MMBtu, which in turn was down 59 cents compared with 2018 levels, according to the Energy Information Administration (EIA).
The 2020 price forecast is down 12 cents from the prognostication in EIA's previous Short-Term Energy Outlook (STEO).
In the latest STEO released Tuesday, EIA said it expects "some upward price pressures to emerge in 2021 because of falling natural gas production that stems from the low prices forecast in 2020."
While falling demand should limit upward price movements, EIA still expects Henry Hub spot prices to average $2.54/MMBtu in 2021.
The front-month natural gas futures contract for February delivery at the Henry Hub settled at $2.17/MMBtu on Jan. 9, down 16 cents/MMBtu from Dec. 2.
"Prices traded in an overall band of 37 cents/MMBtu in December, the narrowest December trading band on record going back to 1990," EIA said. "December was significantly warmer than normal, which is evidenced by the sharp drop in heating-degree days below the normal number for December…
"December 2018 followed a similar pattern when milder-than-normal temperatures led to declining prices. However, this year’s inventory levels are much higher. Natural gas inventories on January 3, 2020 were 19.8% higher than this time last year, which contributed to the lowest natural gas futures prices in January since 2016."
Total domestic gas consumption averaged an estimated 85.3 Bcf/d in 2019 and is expected to increase by 1.4 Bcf/d (1.7%) in 2020 before falling back 1.0 Bcf/d next year. At the same time, EIA estimates dry gas production will average 94.7 Bcf.d in 2020, a 2.9% increase compared with 2019.
Electric generation, the largest natural gas-consuming sector in the United States, used an average 31.0 Bcf/d in 2019, a 7% increase compared with 2018, boosted by new gas-fired electric generation capacity and competitive gas prices. Growth in power sector consumption is expected to slow in 2020, increasing by 1.3% before decreasing by 3.2% in 2021.
"Declining power sector consumption in 2021 reflects increased competition from renewable sources of electricity generation as a result of continuing renewables capacity additions," EIA said. "Declining natural gas consumption also reflects a forecast of higher natural gas spot prices in 2021 compared with 2020, which would make natural gas less competitive against coal in power markets."
Combined residential and commercial consumption will average 23.2 Bcf/d in 2020, down 1.0% compared with 2019, according to the STEO. The lower consumption reflects lower forecast space heating demand and EIA's forecast of 1.8% fewer heating degree days (HDD) in 2020 compared with last year. Industrial sector consumption is expected to increase 4.6% in 2020 and then remain flat in 2021.
The expected growth in gas production this year "is largely in response to improved drilling efficiency and cost reductions, higher associated gas production from oil-directed rigs, and increased takeaway pipeline capacity from the Appalachian and Permian production regions," EIA said. "Forecast natural gas production growth is also supported by planned expansions in liquefied natural gas (LNG) capacity and increased pipeline exports to Mexico.
“The decline in natural gas production in 2021 is in response to a forecast of low natural gas spot prices in 2020 that reduces drilling activity in the Appalachian Basin."
EIA is forecasting net natural gas exports to increase and average 7.3 Bcf/d in 2020 and 8.9 Bcf/d in 2021. U.S. LNG exports averaged 5.0 Bcf/d in 2019 and are expected to increase to 6.5 Bcf/d in 2020 and 7.7 Bcf/d in 2021.
"U.S. natural gas exports to Mexico via pipeline have also increased as more infrastructure has been built to transport natural gas both to and within Mexico," EIA said. "U.S. pipeline exports to Mexico through October averaged 5.1 Bcf/d, increasing by 10% in 2019 compared with the same period in 2018. Exports to Mexico should continue to increase as more natural gas-fired power plants come online in Mexico and more pipeline infrastructure within Mexico is built."