Average natural gas spot prices at Henry Hub are expected to rise to $2.98/MMBtu this month, a 27-cent increase over January prices and sharply higher than the $2.59 December average, the Energy Information Administration (EIA) said Tuesday.

Natural Gas Prices

In the February edition of its Short-Term Energy Outlook (STEO), EIA attributed the higher projected Henry Hub prices this month to a combination of continued strength in liquefied natural gas (LNG) exports and a shrinking surplus in Lower 48 gas stocks compared to five-year average levels.

Recent forecasts showing widespread cold sweeping through the United States this month create “an upside risk to near-term prices in this outlook,” EIA said.

Longer-term, the trajectory for the domestic natural gas benchmark points upward, according to the agency.

“EIA expects that Henry Hub spot prices will average $2.95/MMBtu in 2021, which is up from the 2020 average of $2.03/MMBtu,” agency researchers said. “EIA expects that continued growth in LNG exports and in domestic natural gas consumption outside of the electric power sector, as production remains relatively flat, will contribute to Henry Hub spot prices rising to an average of $3.27/MMBtu in 2022.”

Withdrawals from natural gas storage totaled an estimated 703 Bcf for January, slightly below the prior five-year average January withdrawal of 716 Bcf. Driven by warmer-than-normal temperatures cutting into space heating demand, the rate of January withdrawals came in slower than forecast in last month’s STEO.

“However, EIA forecasts that 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 natural gas storage returning to levels near the five-year average by the end of winter,” researchers said.

In-Line Inventories

In its latest STEO, EIA pegged end-of-March inventories at 1.8 Tcf, roughly in line with the five-year average.

On the exports front, the United States exported 9.8 Bcf/d of LNG on average in January, coinciding with high spot prices in Asia, EIA said.

“However, foggy conditions and high winds affected export operations at Sabine Pass LNG, Corpus Christi LNG and Cameron LNG, leading to several weather-related closures and sporadic suspension of piloting services on several days in January,” according to the agency.

EIA is forecasting average LNG exports of 8.5 Bcf/d for 2021, rising to 9.2 Bcf/d in 2022.

Meanwhile, domestic consumption is set to average 81.7 Bcf/d in 2021, down 1.9% year/year, reflecting decreased power burn resulting from stronger natural gas prices, according to EIA.

[NGI’s natural gas price indexes have included trade data from both price reporters and the Intercontinental Exchange (ICE) since 2008. Find out more about our price index data here.]

Residential and commercial demand are expected to increase in 2021 by 0.2 Bcf/d and 0.6 Bcf/d, respectively, versus year-ago levels. Industrial demand is on track to average 23.0 Bcf/d, a 0.4 Bcf/d increase over 2020, a result of “increased manufacturing activity amid a recovering economy,” EIA said.

On the supply side, U.S. dry natural gas production will average 90.5 Bcf/d this year and 91.0 Bcf/d in 2022, down from an average of 91.3 Bcf/d in 2020 and 93.1 Bcf/d in 2019, according to EIA. 

Production is expected to remain flat amid less output from “smaller natural gas producing regions,” offsetting growth primarily from the Appalachian Basin and the Haynesville Shale.