Henry Hub natural gas prices are expected to average $4.46/MMBtu this year and $3.87/MMBtu next year, thanks in large part to a continuing production surge, the Energy Information Administration (EIA) said Tuesday.
The 2015 price forecast is 13 cents lower than EIA had predicted last month (see Daily GPI, Aug. 12). EIA's 2014 price forecast is unchanged. "Natural gas prices fell from $4.05/MMBtu in July to $3.91/MMBtu in August as storage injections continue to outpace historical norms," according to EIA's latest Short-Term Energy Outlook (STEO).
In July, EIA projected that Henry Hub natural gas prices would average $4.77/MMBtu this year and $4.50/MMBtu in 2015 (see Daily GPI,July 8).
Gas futures prices for December 2014 delivery (for the five-day period ending Sept. 4) averaged $4.07/MMBtu. Current options and futures prices imply that market participants place the lower and upper bounds for the 95% confidence interval for December 2014 contracts at $3.09/MMBtu and $5.35/MMBtu, respectively. At this time one year ago, the gas futures contract for December 2013 averaged $3.87/MMBtu and the corresponding lower and upper limits of the 95% confidence interval were $2.98/MMBtu and $5.04/MMBtu, EIA said.
EIA's report came just one day after analysts with Raymond James & Associates adjusted natural gas prices lower for the fourth quarter, for 2015 and the longer term (see Daily GPI, Sept. 8). Fourth quarter prices are expected to average $3.85/Mcf versus a previous forecast of $4.70, with 2015 prices sliced to $3.65 from $4.25, and the long-term deck priced at $4.25 from $4.50, the analysts said. Primary drivers in bringing down natural gas prices include the ability of U.S. producers to find "ways to bring online staggering amounts of natural gas at prices well below $4.50," wrote analysts J. Marshall Adkins and Edward Rowe. "More importantly, these lower gas drilling breakeven costs are likely to fall even further over the next few years as operators continue to drive better gas production efficiencies.
Stern Agee analysts last Friday revised their 4Q2014 price deck to $4.15/Mcf from $4.65 (see Daily GPI, Sept. 5). The 2015 forecast was reduced to $4.35 from $4.50, with the 2016 initial estimate set at $4.25 Henry Hub.
EIA said it expects natural gas marketed production to grow by an annual rate of 5.3% in 2014 and 2.1% in 2015, with continued strong increases in the Lower 48 states offsetting declines in the Gulf of Mexico. "Rapid natural gas production growth in the Marcellus formation has contributed to low natural gas forward prices in the Northeast, and as a result new infrastructure has been proposed to flow gas to other market regions," EIA said (see related story).
The nation's shale plays continue to push production totals higher. Production in the Marcellus Shale is expected to surpass 16 Bcf/d in October, and the Eagle Ford will approach 7 Bcf/d, according to a Drilling Productivity Report released by EIA Monday.
"Growing domestic production is expected to continue to put downward pressure on natural gas imports from Canada, and spur exports to Mexico," EIA said. "Exports to Mexico have been increasing in recent months because of growing demand from Mexico's electric power sector and flat Mexican production. Mexico has been an outlet for U.S. production, particularly from the Eagle Ford Shale in South Texas. And EIA expects the United States to be a net exporter of liquefied natural gas beginning in 2015.
Natural gas consumption is expected to average 72.6 Bcf/d this year, an increase of 1.8% from 2013 led by the industrial sector, EIA said. Next year the agency expects total natural gas consumption to increase 0.2% as continued industrial sector growth offsets lower residential and commercial consumption. Higher natural gas prices this year are expected to contribute to a 2.0% decline in consumption in the power sector to 21.9 Bcf/d in 2014, increasing to 22.8 Bcf/d in 2015.
Natural gas working inventories totaled 2,709 Bcf as of Aug. 29, which was 471 Bcf lower than the same time last year and 495 Bcf lower than the previous five-year (2009-13) average (see Daily GPI, Sept. 4). EIA said it expects working gas stocks will reach 3,477 Bcf at the end of October, 339 Bcf lower than at the same time last year.