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EIA Lowers End of March NatGas Inventory Forecast to 1.33 Tcf

So far this winter, temperatures east of the Rocky Mountains have been significantly colder; propane supplies have tightened in the East and Midwest regions; and a new record high for natural gas withdrawal from storage has been set, according to the U.S. Energy Information Administration (EIA).

In a 47-page report issued Tuesday, EIA, in the latest iteration of its Short Term Energy Outlook (STEO), said working natural gas storage withdrawals exceeded 200 Bcf for three weeks of January after "very cold temperatures...in a season already characterized by larger-than-normal storage withdrawals."

The week ending January 10 posted a record-high net withdrawal of 287 Bcf from underground, natural gas storage facilities. The January 10 withdrawal was the largest for the 20 years for which data exists and the latest in a season already characterized by withdrawals much larger than average.

EIA said that for the second consecutive month, the forecast for the working inventory expected at the end of March 2014 has been revised downward -- this time, to 1.33 Tcf, the lowest end-of-season level since 2008 -- to reflect the recent withdrawals.

The latest STEO reported the February natural gas futures contract expired at $5.56/MMBtu, a price that set a four-year high. EIA said spot market prices in the Northeast "were routinely in the double digits," and as an example cited New York, which had prices settle in the $90/MMBtu area for several days in January.

According to EIA, residential natural gas prices are expected to average $10.16/Mcf this winter, an increase of 41 cents/Mcf (4.2%) from last winter. "Last winter, natural gas consumers spent an average of $603 on their heating bills," the agency said. "This season, consumers can expect to spend $649 on natural gas heating for the winter months, a 7.7% increase."

January's consumption compelled EIA to revise its estimate for natural gas consumption for the entire 2014. The agency now predicts full-year consumption will average 70.2 Bcf/d in 2014, up 0.6 Bcf/d from the last STEO report issued in January (see Daily GPI, Jan. 7). Higher gas prices were projected to have a negative impact on the amount of gas used for power generation -- declining from 24.9 Bcf/d in 2012 to 22.3 Bcf/d in 2013 and 22.0 Bcf/d in 2014 -- but the agency predicted a rebound to 22.6 Bcf/d in 2015, when several coal plants are expected to be retired.

Marketed natural gas production is also projected to increase, at an average rate of 2.2% in 2014 and 1.2% in 2015.

"Rapid Marcellus [Shale] production growth is causing natural gas forward prices in the Northeast to fall even with or below Henry Hub prices outside of peak-demand winter months," EIA said. "Consequently, some drilling activity may move away from the Marcellus back to Gulf Coast plays such as the Haynesville and Barnett [shales], where prices are closer to the Henry Hub spot price."

EIA said it projects gas production in the offshore Gulf of Mexico [GOM] will increase 1.7% in 2014 but then decline 2.3% in 2015.

On trade issues, the EIA said imports of liquefied natural gas (LNG) from overseas and natural gas via pipelines from Canada have both declined, while natural gas exports to Mexico have increased.

"EIA expects these trends will continue through 2015," the agency said, adding that it projects net imports of 3.5 Bcf/d in 2014 and 2.6 Bcf/d in 2015, a mark that would be the lowest level since 1987. The agency predicts the United States will be a net exporter of natural gas beginning in 2018.

According to EIA, natural gas inventories in the United States fell by 262 Bcf to about 1.92 Tcf during the week ending Jan. 31.

"Colder-than-normal temperatures during the month resulted in increased heating demand, prompting larger-than-normal withdrawals, and a new record high monthly withdrawal," the EIA said, adding that the previous record was set in December. "Stocks are now 778 Bcf less than last year at this time and 556 Bcf less than the five-year average for this time of year."

The agency said "bitterly cold weather" in January caused natural gas spot prices to average $4.71/MMBtu at the Henry Hub for the month, up $0.47/MMBtu from December. "EIA expects the price increases of the past few months will reverse at the end of winter. Projected Henry Hub natural gas prices averaged $4.17/MMBtu in 2014 and $4.11/MMBtu in 2015."

EIA said temperatures east of the Rockies have been significantly colder from October to January, compared to last year. As a consequence, average heating degree days were 12% higher than last winter and 8% above the previous 10-year average. The Northeast was 11% colder than last winter, EIA said, while the Midwest was 17% colder, the South was 20% colder and the West was 3% warmer.

Propane prices in the Midwest rose from an average $2.08/gallon on Dec. 2 to $4.20/gallon on Jan. 27, but fell back to $3.83/gallon on Feb. 3 (see Daily GPI, Feb. 10). EIA said it now expects propane prices in the Midwest to average $2.41/gallon over the winter, a 39% increase over last winter. In the Northeast, the price for the fuel is expected to average $3.43/gallon, up 14% from last winter.

In a supplemental article released by EIA on Tuesday, the agency said it forecasts the global supply of petroleum and other liquids will grow year/year by 1.7 million b/d in 2014, and by 1.4 million b/d in 2015.

"In 2014, EIA expects record high growth of 1.9 million b/d in countries outside of the Organization of the Petroleum Exporting Countries [OPEC], with the United States accounting for more than 50% of the total growth," the agency said, adding that OPEC's liquid fuels supply is expected to decline by almost 200,000 b/d in 2014 as some cartel members reduce production to accommodate the non-OPEC supply growth.

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