The Energy Information Administration (EIA) said production of natural gas will have increased during 2011, thanks to higher onshore production from the Lower 48 eclipsing lower production from Gulf of Mexico (GOM), according to the latest Short-Term Energy Outlook, released Tuesday.
Meanwhile, the EIA predicts that the upcoming winter season will be warmer than last year, but overall total consumption will have grown in 2011 while imports declined.
Natural gas production should average 65.6 Bcf/d in 2011, the EIA said, which if realized would be 6.1% (3.8 Bcf/d) higher than 2010. All of the growth came from higher onshore production in the Lower 48, and it more than made up for the 17% (1.0 Bcf/d) year-over-year decline in GOM production. The EIA said it believes that total marketed production will continue to grow in 2012, but at a slower pace, namely 2% (1.3 Bcf/d) to an average of 66.9 Bcf/d.
“Drilling activity has been resilient despite lower natural gas spot and futures prices,” the EIA said, citing an Oct. 28 rig count conducted by Baker Hughes that found 934 active drilling rigs targeting natural gas. “If drilling continues to increase, production could grow more than expected in 2012. Growing domestic natural gas production has reduced reliance on natural gas imports and contributed to increased exports.”
The EIA said gross pipeline imports of natural gas are expected to have fallen by 6.7% to 8.5 Bcf/d during 2011, and predicts they will fall another 1.4% to 8.3 Bcf/d in 2012. Projected imports of liquefied natural gas (LNG) are also expected to fall, from 1.2 Bcf/d in 2010 to 0.9 Bcf/d in 2011 and 0.7 Bcf/d in 2012.
While imports continue to slide, the EIA predicts that the United States will export more natural gas to Mexico and Canada in 2012. The agency said gross pipeline exports to both countries are expected to average 4.1 Bcf/d in 2011 and 4.2 Bcf/d in 2012, up from 3.1 Bcf/d in 2010.
The EIA said it expects total natural gas consumption in 2011 to grow 1.7% to 61.1 Bcf/d, thanks mostly to the rising use of gas in the industrial and electric power generation sectors, which grew 2.0% and 1.5%, respectively. The agency increased its projected total natural gas consumption figure 1.1% for 2012, to 67.9 Bcf/d, compared to 67.7 Bcf/d in last month’s Outlook. The higher projection was prompted by a 1.1% increase in heating degree days from 2011 to 2012 for residential and commercial users.
Working inventories of natural gas in storage totaled about 3.8 Tcf on Oct. 31, the EIA said. The agency said it expects withdrawals to total 2.0 Tcf during the upcoming winter heating season, leaving 1.8 Tcf in inventory by March 31, the last day of the season. If that prediction holds true, the withdrawal for the 2011-2012 winter season will be 13% lower (0.3 Tcf) than the 2.3 Tcf withdrawn during the previous season.
Natural gas prices are not expected to rebound anytime soon. The EIA said the Henry Hub spot price averaged $3.56/MMBtu in October, 34 cents lower than the September average and 49 cents lower than the August average. The agency said it has lowered its 2011 forecast by 6 cents to $4.09/MMBtu, and also lowered its 2012 forecast to $4.13/MMBtu, compared to last month’s Outlook.
The EIA said natural gas futures prices — for January 2012 delivery (in the five-day period ending Nov. 3, 2011) — averaged $3.96/MMBtu, with an average implied volatility (IV) rating of 35%, compared to a 41% IV rating from January 2011. The lower and upper bounds for the 95% confidence interval for January 2012 contracts are $3.06/MMBtu and $5.13/MMBtu, respectively, compared to $3.06/MMBtu and $5.59/MMBtu from last January.
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