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EIA Bumps 2013 Henry Hub Price Forecast Up to $3.49

With working natural gas inventories at a record high, the Henry Hub spot price is expected to average $2.77/MMBtu this year -- a 31% decrease from $4.00/MMBtu in 2011 -- but it is expected to rebound to an average of $3.49/MMBtu in 2013, the Energy Information Administration (EIA) said in its Short-Term Energy Outlook released last week.

That's more bullish than EIA's previous Outlook, which forecast Henry Hub natural gas prices to average $2.71/MMBtu this year and $3.35/MMBtu in 2013 (see NGI, Oct. 15).

For the week ending Nov. 8, working inventories totaled 3,929 Bcf, according to EIA's Weekly Natural Gas Storage Report, a 109 Bcf increase over the corresponding week last year and 244 Bcf above the five-year average and 77 Bcf more than the previous record high, which was achieved Nov. 18, 2011. EIA has said it expects injections to continue for a few weeks in November.

EIA said natural gas futures prices for February 2013 delivery (in the five-day period ending Nov. 1) averaged $3.86/MMBtu. The lower and upper bounds for the 95% confidence interval for February 2013 contracts are $2.76/MMBtu and $5.39/MMBtu, respectively, compared to $2.89/MMBtu and $5.45/MMBtu at this time last year.

The agency expects that natural gas consumption will average 69.7 Bcf/d in 2012, an increase of 3.2 Bcf/d (4.8%) from 2011, with projected consumption decreasing 0.5 Bcf/d (0.7%) in 2013.

"Large gains in electric power use in 2012 more than offset declines in residential and commercial use," EIA said. "Projected consumption of natural gas in the electric power sector averages 25.4 Bcf/d in 2012, 22% higher than in 2011, primarily driven by the increased relative cost advantages of natural gas over coal for power generation in some regions...Expected declines in the electric power sector [in 2013 will] offset increases in residential, commercial and industrial consumption."

EIA said last month that it expects U.S. households -- one-half of which use natural gas as their primary heating fuel -- to spend an average of $89 more this winter, reflecting a 1% increase in the average residential price from last winter and a 14% hike in consumption if near-normal (cold) temperatures materialize for the upcoming winter. Winter was unseasonably warm last year, resulting in little additional demand and weak prices. Going into the winter heating season, which started Nov. 1, EIA expects gas inventories to be at a record high: 3,903 Bcf.

Liquefied natural gas (LNG) imports are expected to fall by about half this year compared with 2011, the agency said.

"EIA expects that an average of slightly less than 0.5 Bcf/d will arrive in the United States (mainly at the Elba Island terminal in Georgia and the Everett terminal in New England) both in 2012 and 2013, either to fulfill long-term contract obligations or to take advantage of temporarily high local prices due to cold snaps and disruptions. Higher prices for LNG, particularly in Asian markets, have made the United States a market of last resort for LNG suppliers. Even as natural gas prices are expected to rise in the United States next year, prices in Japanese and Korean markets have historically been much higher," EIA said.

Total marketed production of natural gas grew by 4.8 Bcf/d (7.9%) in 2011, according to EIA, which forecast that total marketed production growth will slow in 2012, and that 2013 production will be near the 2012 level.

"So far during 2012, production has fluctuated slightly around an average of 69 Bcf/d, in contrast to the strong upward growth seen between 2009 and 2011. EIA expects some small declines in production in the coming months, related to recent drops in the rig count." The natural gas rig count was 424 as of Nov. 2, according to the Baker Hughes Rotary Rig Count, a 3% decline from the previous week and a 53% decline from a year ago.

In its latest Monthly Natural Gas Gross Production report, EIA said natural gas production in Alaska fell to 4.05 Bcf/d in August, down 39.3% compared to 6.67 Bcf/d in July -- and was down 40.3% from 6.79 Bcf/d in August 2011 -- while Hurricane Isaac clamped down on output in the Gulf of Mexico (GOM) and Louisiana, keeping total U.S. production down 3.4% compared to the previous month.

Total U.S. production in August was 76.60 Bcf/d, compared with 79.33 Bcf/d in July and 76.47 Bcf/d in August 2011, EIA said. Total Lower 48 production was 72.55 Bcf/d, a 0.2% decrease from 72.66 Bcf/d in August. Federal Offshore GOM production was 3.70 Bcf, a 9.5% decrease from 4.09 Bcf/d in July, and Louisiana production was 8.31 Bcf/d, a 1.9% decrease from the month before. Those decreases came "as many operators reported shut-ins due to Hurricane Isaac," EIA said.

The Bureau of Safety and Environmental Enforcement estimated that 75.52% (3.26 Bcf/d) of daily natural gas production and 94.99% (1.31 million b/d) of daily oil output in the GOM was shut-in in the immediate aftermath of the storm (see NGI, Sept. 3).

Production in Texas was 22.41 Bcf/d in August, a 1% increase from 22.18 Bcf/d in July and its highest mark since last November, according to EIA, while the Other States category was 23.08 Bcf/d, a 1.6% increase from 22.71 Bcf/d in July, and a hefty 18.2% increase compared with 19.53 Bcf/d in August 2011. Those increases "primarily can be explained by new wells coming on-line in several shale plays," EIA said. Month-to-month declines were also reported in New Mexico (3.60 Bcf/d, a 0.3% decline from 3.61 Bcf/d in July); Oklahoma (5.48 Bcf/d, a 0.4% decline from 5.50 Bcf/d in July); and Wyoming (5.97 Bcf/d, a 2.1% decline from 6.10 Bcf/d in July), EIA said.

The agency recently reported that production from the nation's burgeoning shale plays helped total gross withdrawals of domestic natural gas jump to 28.58 Tcf in 2011, a 6.5% increase from 26.84 Tcf in 2010 (see NGI, Oct. 1). Total gross withdrawals are on pace to easily surpass those numbers again this year, EIA said.

Total combined natural gas purchase and sales volumes reached 124,752 TBtu in 2011, a 2.5% increase compared with 121,682 TBtu in 2010, according to an analysis by Natural Gas Intelligence (NGI) of 2011 Form 552 filings with the Federal Energy Regulatory Commission (see NGI, June 4). The 552 data showed that while the rate of growth in combined volumes was down from the 6.0% year-to-year gain reported last year (see NGI, June 29, 2009), the 2011 total yearly combined volume was the highest volume recorded since the Commission began reporting the data in 2009.

Lower 48 marketed production, which includes ethane and therefore may be a better indicator of total available supply to the U.S. consuming public than pure dry gas production, came in at 2.109 Tcf in August. That was down 0.2% month-over-month, but still up 4.2% year-over-year. While that year-over-year increase is the smallest thus far in 2012, it marks five consecutive months that production has increased between 4-5% over the same month last year, which suggests production may have stabilized when compared to last year.

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