Record-setting U.S. natural gas production and storage should benefit consumers large and small this summer, according to the 2012 Summer Outlook by the Natural Gas Supply Association (NGSA).
The association's latest outlook, issued on Tuesday, examined publicly available data on factors that influence supply and demand, then projected their combined potential effect on natural gas prices for the coming summer months. Emerging trends also were identified.
"This summer we are witnessing the dawn of a new era for natural gas producers and consumers, with natural gas breaking new ground in many different ways," said NGSA CEO R. Skip Horvath. "Not only is natural gas enabling new, expanded and reopened industrial facilities, we're producing and storing record amounts of natural gas and generating increased amounts of electricity. This is good news for households, the environment and American business."
NGSA relied on publicly available data from Energy Ventures Analysis (EVA) and the Energy Information Administration, as well as IHS Global Insight and the National Oceanic and Atmospheric Administration. NGSA doesn't project actual cost figures for wholesale or retail markets.
Abundant gas has contributed to a domestic "manufacturing renaissance" as industries use the competitive advantage to "build, reopen and expand fertilizer, petrochemical and steel facilities," NGSA said in the latest outlook. Among other things, 11 major industrial projects have been completed or are set to be ready by the end of this year, along with another dozen projects scheduled for completion by 2017, including a gas-to-liquids facility.
Electric utilities are forecast to use 17% more natural gas, or about 3.9 Bcf/d, this summer than a year ago because of coal-to-gas switching on low gas prices, according to the forecast. Electric utilities should double the amount of switching from coal to gas-fired power plants compared with a year ago, which would account for 6.1 Bcf/d of gas versus last summer's 2.9 Bcf/d.
"This would make 2012 the fourth consecutive summer of coal-to-gas switching and the largest amount of switching yet," said NGSA's report.
The five key factors that comprise the summer outlook -- weather, economy, customer demand, storage and production -- when combined place overall downward pressure on gas prices this summer compared with the summer of 2011, when the average Henry Hub price was $4.15/MMBtu, NGSA said.
For example, milder summer weather is expected to place downward pressure on prices versus a year ago because the summer of 2011 was 13% warmer than the 30-year average, the analysis indicated. Energy Ventures Analysis is predicting that this summer will be 2% cooler than the 30-year average and 13% cooler than a year ago.
Although economic indicators are "encouraging," NGSA forecasters also expect to see pressure on prices and demand this summer. However, positive numbers in gross domestic product, unemployment, manufacturing and the Consumer Price Index "bode well for the future."
Gas demand "is the only factor expected to place upward pressure on prices this summer," according to the report. "Customer demand for natural gas is expected to increase by 8% overall, compared to last summer. Demand from the electric sector is projected to increase by 17% because of price-sensitive generators switching to natural gas. Industrial demand is expected to grow about 1% this summer compared to last summer."
Gas storage began the injection season this year at a record of almost 2,500 Bcf, much higher than the near 1,600 Bcf at the beginning of the 2011 injection season, said the report. "Although weekly storage injections are expected to be smaller summer-over-summer, NGSA still projects that storage will reach a record 4,150 Bcf by the end of the injection season, placing downward pressure on prices compared to summer of 2011."
And strong gas output -- something that continues to be the never-ending story -- should exert downward pressure on prices, according to the summer forecast. NGSA's outlook is forecasting overall production at 65.8 Bcf/d this summer, compared with last summer's average of 63.2 Bcf/d.
"Although the rig count for natural gas currently hovers around 600 compared to last summer's count of 893, production is being supported by drilling for oil and valuable liquids often found with associated natural gas," the report said.
Of course, there are the "wild cards" in the outlook deck, such as "natural disasters or big weather surprises, changing fuel switching economics, manufacturing exceeding expectations or production change resulting from changes in liquids prices...that could affect the summer outlook."
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