As lagging storage inventories and robust demand pressure prices higher, Henry Hub natural gas spot prices will average $8.69/MMBtu in the third quarter, updated Energy Information Administration (EIA) projections show.
Amid rising domestic production by next year, the national benchmark price should retreat to $4.74 in 2023, the agency said in the June edition of its Short-Term Energy Outlook (STEO), published Tuesday.
Last month, EIA modeled an average Henry Hub price of $8.59 for the second half of 2022, illustrating the extent to which the domestic natural gas market has entered a period of sustained elevated pricing. What’s more, with the New York Mercantile Exchange futures trading above $9 through February 2023 as of Tuesday, EIA’s projections might be on the conservative side.
EIA researchers highlighted three main factors driving the higher prices: Below average storage inventories, “steady demand” for U.S. LNG exports and high power sector demand on limited gas-to-coal switching opportunities.
Domestic consumption is on pace to average 85.3 Bcf/d for 2022 as a whole, a 3% increase over 2021 levels, according to the agency.
“Rising U.S. natural gas consumption reflects increased consumption across all sectors,” researchers said. This includes higher residential/commercial demand on colder temperatures in 2022.
Improving Economic Activity
As for industrial demand, “rising economic activity contributes to higher consumption,” EIA said. “Limited natural gas-to-coal switching in the electric power sector, despite high natural gas prices, results in increased consumption of natural gas for power generation.”
Domestic consumption is projected to total 85.1 Bcf/d in 2023, in line with 2022 levels, according to the latest STEO.
In the face of elevated prices and robust demand, U.S. dry natural gas production is set to average 95.7 Bcf/d this month before rising to 97.9 Bcf/d for the second half of 2022, the updated EIA projections show. That would mark a 2.7 Bcf/d, or 3%, increase over output in the second half of 2021.
For 2023, EIA said it expects domestic production to grow to 101.6 Bcf/d on average.
U.S. natural gas inventories exited the month of May at 2.0 Tcf, lagging the five-year average by 15%, according to EIA. In the June STEO, the agency modeled end-October domestic storage of slightly more than 3.3 Tcf, which would see inventories enter the heating season at a 9% deficit to the five-year average.
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