With stockpiles higher than previously expected as winter temperatures have thus far deviated to the warmer side of normal, the U.S. Energy Information Administration (EIA) is slashing its forecast for average January natural gas spot prices to $3.10/MMBtu, down from $3.42 predicted a month ago.
The updated forecast for benchmark Henry Hub, published Tuesday in the December edition of the agency’s Short-Term Energy Outlook, follows a stretch of milder weather that saw November spot prices at the benchmark average $2.61, up slightly from the October average of $2.39.
“Price increases last month were moderated by significantly warmer-than-normal temperatures, which reduced residential space heating demand for natural gas despite many remaining at home in response to the pandemic,” EIA said.
EIA researchers still expect prices to increase in the months ahead on a combination of higher heating demand, increasing exports of liquefied natural gas (LNG) and domestic production declines. However, “the lower January price forecast reflects higher forecast storage levels this winter compared with last month’s forecast.”
The agency expects monthly average spot prices to average $3.01 for full-year 2021, up from a forecast average of $2.07 for 2020.
Helping quantify the extent to which mild temperatures have cut into space heating demand so far this winter, withdrawals from U.S. natural gas storage totaled only 20 Bcf for November, sharply below the 103 Bcf five-year average withdrawal for the month.
This came on the heels of end-of-October inventories that clocked in at close to 4.0 Tcf, 5% higher than the five-year average and the second-highest level on record for the time of year, according to the agency.
While warmer-than-normal temperatures have yielded lower-than-expected withdrawals so far this season, “declines in U.S. natural gas production this winter compared with last winter will more than offset the declines in natural gas consumption, which will contribute to inventory withdrawals outpacing the five-year average” between now and the end of March.
EIA forecast a storage carryout of 1.6 Tcf for end-of-March 2021, 15% lower than the prior five-year average.
Looking more closely at the demand picture, EIA said the United States exported 9.4 Bcf/d of LNG in November, a new monthly record.
“International spot and forward LNG prices continued to increase in late November, supported by reduced global LNG supply because of outages at LNG export plants in several countries and reported congestion at the Panama Canal, which affected westbound U.S. LNG exports to Asia,” researchers said.
LNG demand is expected to continue rising, driven by expectations for colder-than-normal winter weather in Northern Asia and Europe, along with coal plant closures in South Korea that figure to increase demand for natural gas-fired electric generation there, EIA said.
The agency projected more than 9.5 Bcf/d of U.S. LNG exports for December through February, with exports to average 8.5 Bcf/d for 2021, 30% above 2020 levels.
Within U.S. borders, natural gas consumption is expected to average 83.4 Bcf/d for 2020, a 2.0% decline versus 2019 levels, which EIA attributed to warmer overall temperatures this year compared to last. Total U.S. consumption is expected to fall further to 79.4 Bcf/d in 2021, a 4.8% decline from 2020 levels.
“The forecast decline in 2021 results from rising natural gas prices that lower forecast natural gas demand in the electric power sector,” researchers said.
In terms of supply, U.S. dry natural gas production is forecast to decline to an average 87.1 Bcf/d by April 2021 before increasing slightly. Production is forecast to average 87.9 Bcf/d in 2021, versus 90.9 Bcf/d in 2020 and 93.1 Bcf/d in 2019. Production peaked at 97.0 Bcf/d in December 2019, according to EIA.
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