Natural gas spot prices at Henry Hub are poised to ascend to an average $3.42/MMBtu in January on a combination of space heating demand, rising liquefied natural gas (LNG) exports and lower production, according to updated projections from the Energy Information Administration (EIA).
In its latest Short-Term Energy Outlook (STEO), published Tuesday, EIA said it expects monthly average spot prices to remain above the $3 mark through 2021, averaging $3.14 for the year, a dollar improvement over the projected full-year 2020 average of $2.14.
The agency’s latest natural gas price forecast carries over similar themes from last month’s STEO.
LNG exports have been booming recently, and EIA’s measure of October export volumes showed a clear uptrend. EIA estimated exports averaged 7.2 Bcf/d in October, up 2.3 Bcf/d from September volumes, marking the largest month/month increase since Lower 48 exports of the super-chilled fuel began in 2016.
EIA expects U.S. LNG exports to average 8.5 Bcf/d in November, above pre-Covid-19 levels, with export volumes to average 8.4 Bcf/d in 2021, a 31% year/year increase.
“Higher global forward prices for LNG indicate improving netbacks for buyers of U.S. LNG in European and Asian markets for the upcoming winter season,” EIA said. “The increased prices come amid expectations of natural gas demand recovery in those markets and potential LNG supply reductions because of outages at several LNG export facilities in the Pacific Basin and Atlantic Basin.”
Total Lower 48 working gas in underground storage ended October at close to 4.0 Tcf, 5% higher than the previous five-year average and the second highest end-of-October level on record, according to EIA.
Such a storage cushion heading into the winter heating season may prove necessary, as EIA expects inventory draws to outpace the five-year average over the next few months, putting end-of-March stockpiles at an estimated 1.5 Tcf, 16% lower than the 2016-2020 average.
This comes as monthly average dry gas production is forecast to decline to 87.0 Bcf/d by April 2021 before “increasing slightly” from there, according to EIA. That would represent a decline of 10 Bcf/d from monthly average production of 97.0 Bcf/d recorded for December 2019.
EIA expects dry gas production to average 87.9 Bcf/d for 2021, with output rising starting in 2Q2021 in response to higher natural gas and crude prices.
“The increase in crude oil prices is expected to raise associated gas production from oil-directed wells in late 2021,” particularly in the Permian Basin, the agency said.
Domestic natural gas consumption has been down in 2020, with overall consumption expected to average 83.7 Bcf/d in 2020, off 1.7% from 2019 levels.
“The decline in total U.S. consumption reflects less heating demand in early 2020, contributing to residential demand in 2020 averaging 13.2 Bcf/d (down 0.6 Bcf/d from 2019) and commercial demand in 2020 averaging 8.8 Bcf/d (down 0.9 Bcf/d from 2019),” EIA said. “EIA forecasts industrial consumption will average 22.5 Bcf/d in 2020, down 0.6 Bcf/d from 2019 as a result of reduced manufacturing activity.”
In 2021, total U.S. natural gas consumption is set to decline an additional 5% from 2020 levels, to an average 79.4 Bcf/d. Driving these declines will be higher natural gas prices curbing consumption in the power sector, according to EIA projections.
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