A slowdown in natural gas production, anticipated flat gas consumption and and expected near-record high storage levels for most of the year are expected to exert a downward pressure on gas prices this year, the Energy Information Administration (EIA) said in its Short-Term Energy Outlook for February.
The Henry Hub spot price averaged $4.49/MMBtu in January, 24 cents greater than the average spot prices in December, the EIA said, but it expects the spot prices to average only $4.16/MMBtu this year, down 22 cents from 2010. The EIA said it expects the gas market to begin to tighten in 2012, with Henry Hub spot prices rising to an average of $4.58/MMBtu.
Total marketed natural gas production grew strongly throughout 2010 (4.4% increasing to 63.7 Bcf/d in December 2010 from 59.7 Bcf/d in January 2010), but year-over-year growth in 2011 is expected to slow considerably to just 0.8% as an increase of 1 Bcf/d in the Lower 48 states onshore is partially offset by a decline of 0.4 Bcf/d in the Gulf of Mexico. Natural gas production will likely average 59.53 Bcf/d this year, the EIA said.
The latest EIA data for monthly gas production showed an increase in Lower 48 production for November 2010, reversing October's decline (see Daily GPI, Jan. 31). "Modest declines are expected to resume and continue through 2011, however, because of a falling drilling rig count in response to lower prices.
"The number of rigs drilling for natural gas reported by Baker Hughes Inc. increased from a low of 665 in July 2009 to 973 in April 2010. Over the following six months the natural gas rig count stayed relatively unchanged. However, over the last three months, the rig count has fallen, dropping to 911 rigs as of Feb. 4. The large price difference between petroleum liquids and natural gas on an energy-equivalent basis contributes to an expected shift towards drilling for liquids rather than for dry gas."
The EIA expects natural gas consumption to remain nearly flat this year, rising to 66.17 Bcf/d from 65.97 Bcf/d in 2010. Demand is expected to grow modestly in 2012 to 66.81 Bcf/d, the agency said. "Increases in natural gas consumption in the electric power sector (2.9%) and industrial sector (1.2%) are partially offset by slight declines in residential and commercial consumption [this year]. EIA expects electric power sector and industrial sector consumption to grow by 2.9% and 1.2%, respectively in 2012."
The EIA sees pipeline imports falling 4.2% to 8.7 Bcf/d this year and by 5.5% to 8.2 Bcf/d in 2012. Projected imports of liquefied natural gas (LNG) are expected to average 1.1 Bcf/d this year, for a 4.4% drop from 2010. It anticipates LNG imports growing modestly to 1.2 Bcf/d in 2012. "High domestic production, high inventories and lower U.S. prices relative to European and Asian markets should continue to discourage LNG imports" into the United States.
At the end of January, working gas in storage was 2,353 Bcf, slightly below last year's level at this time. At the end of the winter heating season in March the agency said it expects about 1,651 Bcf will remain in storage, which is a downward revision of about 120 Bcf from January's outlook.
The EIA said it anticipates near-record high inventories to continue through most of the year. Falling production and increased consumption will contribute to lower inventories in the second half of 2012, it said.
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