On the strength of exports and domestic consumption, natural gas spot prices at Henry Hub are expected to average $2.78/MMBtu in the second quarter and $3.05 for 2021 overall, the U.S. Energy Information Administration (EIA) said Tuesday.
The updated projections, published in the May edition of the agency’s Short-Term Energy Outlook, represent a modest increase in EIA’s 2021 natural gas price forecast. Last month, EIA predicted an average Henry Hub price of $2.73 for the second quarter and $3.04 for the full year.
Henry Hub averaged $2.66 in April, a slight increase over the March average of $2.62. Spot prices this year are on track to far exceed the 2020 average of $2.03.
EIA highlighted growth in liquefied natural gas (LNG) exports and rising domestic consumption — from residential, commercial and industrial demand sources — as the two main factors expected to drive higher prices this year.
“In 2022, we expect the Henry Hub price will fall to an average $3.02 amid slowing growth in LNG exports and rising production,” researchers said.
The U.S. exported an all-time high 10.5 Bcf/d of LNG in March, with exports averaging 9.2 Bcf/d in April. That marks the highest volume of LNG exported for those months since Lower 48 exports began in 2016, EIA said.
“Throughout 2020 and in January 2021, more than half of U.S. LNG exports went to Asia,” EIA said. “However, in February and March 2021, more than half of U.S. LNG exports went to Europe as a result of spot natural gas prices in Europe reaching levels similar to spot natural gas prices in Asia.”
EIA said it expects U.S. LNG exports to average 8.6 Bcf/d in May before ramping to above 9.0 Bcf/d for the summer to meet peak demand in Asia and Europe.
U.S. natural gas consumption is set to average 82.6 Bcf/d in 2021, a 0.7% year/year decrease. EIA said this is a factor of higher prices prompting gas-to-coal switching in the power sector. Residential/commercial demand is expected to increase 1.0 Bcf/d this year versus 2020 levels, with industrial consumption on track to rise 0.8 Bcf/d year/year.
“Rising consumption outside of the power sector results from expanding economic activity and colder temperatures in 2021 compared with 2020,” EIA said. “We expect U.S. natural gas consumption will average 82.5 Bcf/d in 2022.”
Lower 48 natural gas storage ended April at an estimated 2.0 Tcf, 3% below the prior five-year average, according to the agency. Stockpiles are on track to exit the 2021 injection season at over 3.6 Tcf, continuing to lag five-year norms by 3%, EIA said.
Domestic dry natural gas production is on pace to average 91.1 Bcf/d for 2021, down 0.3% year/year. Production dipped to 86.3 Bcf/d in February amid weather-related disruptions before rebounding to an estimated 91.3 Bcf/d in March, according to EIA.
“We expect relatively flat dry natural gas production in May ahead of production beginning to rise in mid-2021,” EIA said.
Production is forecast to climb to 92.0 Bcf/d in 4Q2021 before averaging 93.1 Bcf/d in 2022, with the higher output a result of stronger natural gas and crude oil prices versus 2020, researchers said.
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