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EIA Boosts 2014 Henry Hub Price Forecast to $4.74/MMBtu

An explosion and fire at Williams Company's Opal, WY, processing plant last month put only limited pressure on natural gas prices in the region, and Henry Hub spot prices are expected to decline through this summer, but not to the depths previously forecast, according to the Energy Information Administration (EIA).

Natural gas spot prices averaged $4.66/MMBtu at the Henry Hub in April, down 24 cents from March, "as spring weather finally arrived in much of the United States," EIA said. The agency projects that spot prices "will continue to decline, but at a slower pace through the spring and summer," with the Henry Hub price expected to average $4.74/MMBtu this year and $4.33/MMBtu in 2015. That's a significant increase from the $4.44/MMBtu this year and $4.11/MMBtu in 2015 that EIA had forecast last month (see Daily GPI, April 8).

Gas futures prices for August 2014 delivery (for the five-day period ending May 1) averaged $4.78/MMBtu. Current options and futures prices imply that market participants place the lower and upper bounds for the 95% confidence interval for August 2014 contracts at $3.63/MMBtu and $6.31/MMBtu, respectively. One year ago, the gas futures contract for August 2013 averaged $4.34/MMBtu, and the corresponding lower and upper limits of the 95% confidence interval were $3.22/MMBtu and $5.84/MMBtu, EIA said.

The Opal natural gas processing facility and major gas hub, which was closed April 23 following a fire at one of five cryogenic processing trains, has been returned to previous capacity levels of about 1.1 Bcf/d (see related story). During the intervening two weeks, "pipeline flows into California and the Southwest from the Permian Basin in West Texas and New Mexico, and rerouted production from the Rockies, offset lost output from Opal," EIA said. "This limited natural gas price increases in the region that could result from temporary supply shortages."

Natural gas working inventories reached 981 Bcf on April 25, which is 790 Bcf lower than the same time last year and 984 Bcf lower than the previous five-year average. "The injection season has started somewhat slowly, but EIA expects injections will pick up over the summer to end October at just over 3,400 Bcf," the agency said. "EIA projects the rate of injections between April 25 and the end of October will average about 90 Bcf per week, which is 20 Bcf greater than the average weekly injection during the past five years."

The agency still expects natural gas marketed production will grow by an average rate of 3.0% this year, but it raised its 2015 forecast to 1.8% from the 1.5% it had predicted last month. "Rapid natural gas production growth in the Marcellus formation is contributing to falling natural gas forward prices in the Northeast, which often fall even with or below Henry Hub prices outside of peak winter demand months," EIA said. "Consequently, some drilling activity may move away from the Marcellus back to Gulf Coast plays such as the Haynesville and Barnett, where prices are closer to the Henry Hub spot price.

EIA expects total natural gas consumption will average 72.3 Bcf/d this year, an increase of 1.3 Bcf/d compared with 2013 and a marginal increase compared to the agency's April forecast. Consumption in the industrial sector will be strong, but higher gas prices will contribute to a 0.4% decline in consumption in the power sector. And a return to near-normal weather next year will contribute to lower residential and commercial consumption, resulting in a 0.1 Bcf/d decline in total gas consumption, EIA said.

Net imports of natural gas are expected to be 3.7 Bcf/d in 2014 and 3.1 Bcf/d in 2015, which would be the lowest level since 1987. EIA projects that the United States will be a net exporter of natural gas beginning in 2018.

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