Natural gas bulls have taken it on the chin so far this heating season, but Henry Hub spot prices remain on track to average $4.58/MMBtu from December through February, according to the latest forecasting from the U.S. Energy Information Administration (EIA).

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The winter price prediction, published Tuesday as part of the December edition of the EIA’s Short-Term Energy Outlook, reflects a nearly $1 discount versus the prior month’s forecast, when the agency called for an average price of $5.51 for November through February.

EIA said its forecast Henry Hub spot price “generally declines through 2022” to an average of $3.98 for the full year on rising domestic production and slowing growth in liquefied natural gas (LNG) exports.

The forecast should come as welcome news for natural gas buyers in Mexico, who have expressed consternation about a supply and/or price shock similar to Winter Storm Uri occurring again this winter.

Mexico relies on imports to meet over 90% of domestic demand, excluding gas consumed by state oil company Petróleos Mexicanos. As a result, gas transactions in Mexico are typically linked to U.S. locations such as Waha, Houston Ship Channel and Henry Hub.

TC Energy Corp.’s Stanley Chapman III, president for U.S. and Mexico natural gas pipelines, said this month that TC sees Mexico’s imports of U.S. gas growing to 9 Bcf/d in 2030 from around 6 Bcf/d averaged in 2020.

Henry Hub prices averaged $5.05 in November, down sequentially from the $5.51 October average. Mild weather lowered heating demand and allowed stockpiles to narrow the deficit versus the five-year average during the month, even as strong global demand supported prices, the agency noted.

EIA continues to expect near-average withdrawals from storage for the 2021/22 winter, and this along with strong LNG takeaway and “relatively flat production” levels through March should keep natural gas prices “near recent levels before downward price pressures emerge.”

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Will Natural Gas Prices Remain Volatile?

Still, prices figure to “remain volatile over the coming months” amid “uncertainty around seasonal demand” as winter temperatures set the pace for natural gas consumption.

U.S. natural gas inventories exited November at more than 3.5 Tcf, or 3% shy of the prior five-year average, according to EIA. 

“We expect natural gas inventories to fall by 2.0 Tcf during the November-March withdrawal season, ending March below 1.7 Tcf, which would be 2% less than the 2017-2021 average for that time of year,” researchers said.

LNG exports averaged 10.7 Bcf/d for November, a 0.8 Bcf/d sequential increase amid wide price differentials between domestic and global benchmarks. The agency is forecasting 11.1 Bcf/d of exports on average for December through March.

“We expect high levels of LNG exports to continue into 2022, averaging 11.5 Bcf/d for the year, a 17% increase from 2021,” researchers said. “The forecast reflects our assumption that global natural gas demand remains high and U.S. LNG export capacity increases.”

On the supply side, domestic dry natural gas production averaged 96.1 Bcf/d in November, up 1.0 Bcf/d sequentially and up from 91.9 Bcf/d for the first half of 2021.

EIA in the latest STEO cautioned that the emergence of the Omicron coronavirus variant “raises uncertainty about the level of energy consumption throughout the world” versus the prior month’s expectations.

“In addition to uncertainty about macroeconomic conditions, winter weather along with the evolving effects of consumer behavior on energy demand because of the pandemic present a wide range of potential outcomes for energy consumption,” researchers said.