With storage levels expected to lag behind the five-year average this summer, Henry Hub natural gas spot prices will soar to $8.59/MMBtu on average in the second half of this year, according to updated forecasting from the Energy Information Administration (EIA).

US natural gas prices

Henry Hub prices are forecast to average $7.83 for the second quarter after averaging $6.59 for April, EIA said in the May edition of its Short-Term Energy Outlook, published Tuesday. The April 2022 Henry Hub average represented a whopping $4.90 increase over the April 2021 average of $2.66, the agency said.

“High forecast natural gas prices reflect our expectation that natural gas storage levels will remain less than the five-year average this summer,” researchers said. 

Stockpiles should lag recent historical norms as “limited opportunities” for gas-to-coal switching keep power sector demand high despite higher natural gas prices, according to EIA.

“Natural gas prices could rise significantly above forecast levels if summer temperatures are hotter than assumed in this forecast and electricity demand is higher,” researchers said.

The updated STEO cited forecasting from the National Oceanic and Atmospheric Administration, which predicted a 6.5% decrease in U.S. cooling degree days for June through August versus the year-earlier period.

U.S. natural gas inventories exited April at an estimated 1.6 Tcf, or 17% below the five-year average, EIA said. Higher demand for heating and “relatively flat production” saw injections total a below-average 190 Bcf for the month. A 418 Bcf injection for May projected in the latest STEO would narrow the year-on-five-year deficit to 14%.

“We forecast that natural gas inventories will end the 2022 injection season at almost 3.4 Tcf, which is 9% below the five-year average,” researchers said. “However, summer temperatures will be key to storage, and a hotter-than-normal summer that results in high electricity demand could cause inventories to be lower than forecast.”

This comes as exports via liquefied natural gas (LNG) are forecast to average 12.1 Bcf/d from May through August, the latest STEO shows. Overall, U.S. LNG exports are on pace for 23% year/year growth in 2022, the agency said.

The summer LNG export forecast for 2022 “reflects our assumption of slightly lower LNG demand in Asia and Europe this summer compared with our previous assumption, in part because of sustained high natural gas prices,” according to EIA.

A lack of new export facilities will limit LNG export growth in 2023, with exports expected to climb 5% to 12.6 Bcf/d, according to the latest STEO.

On the supply side, U.S. dry natural gas production averaged an estimated 95.5 Bcf/d in April, a 0.4 Bcf/d sequential increase, EIA said.

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“Although production in April was lower than the recent peak in December 2021, it increased in each of the past two months,” the agency said. 

In the latest STEO, EIA modeled average natural gas production of 95.8 Bcf/d for May, with output to average 96.7 Bcf/d for 2022 overall, a 3.2 Bcf/d year/year increase. Output is expected to then climb to 101.7 Bcf/d in 2023.

This forecast production growth in 2023, alongside slowing growth in both LNG exports and demand, will help push storage levels higher next year, EIA predicted. Henry Hub spot prices will consequently average $4.74 in 2023, according to the STEO forecast.