Strong demand from the industrial sector and the “ripple effect” of Europe’s energy crisis will be among the key factors putting upward pressure on natural gas prices this summer, according to projections from the Natural Gas Supply Association (NGSA).
In its 2022 Summer Outlook, published Wednesday, the trade group predicted downward pressure from weather and production compared to last summer, with low storage inventories and overall demand expected to apply upward price pressure.
NGSA said it expects the market to “remain in a tight balance this summer, resulting in upward pressure on natural gas prices compared to last summer’s average of $3.85/MMBtu” for Henry Hub.
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“The fundamentals in NGSA’s outlook show strong demand for natural gas at home and globally,” said NGSA Chairman David Attwood, who also serves as ExxonMobil’s vice president of the Americas for Global Gas Optimization & Trading.
“They also underscore the critical role of natural gas in keeping the lights on, maintaining energy security, fueling industrial growth and achieving the world’s ambitious decarbonization goals. It’s clearer than ever that we need more natural gas, and regulations that acknowledge this reality.”
In the context of $7-plus New York Mercantile Exchange futures for the summer contracts as of Wednesday’s trading, with bullish sentiment stoked by domestic supply adequacy concerns and geopolitical tensions, predicting upward pressure on prices versus last summer might qualify as something of an understatement.
Still, in the summer/summer comparison, NGSA expects supply growth to outpace demand in 2022. Versus summer 2021 output, production this summer is set to rise 3.6 Bcf/d, or 4%, while demand is projected to grow 2.7 Bcf/d, a 3% increase.
Longer Term Demand Doubts?
A report by Energy Ventures Analysis (EVA) used in the NGSA outlook calls for total U.S. dry natural gas production of 96.6 Bcf/d this summer.
“Although the extensive gain in oil and gas prices should signal for more drilling, increased price volatility, military conflict in Europe and uncertainty around” environmental, social and governance issues raise doubts over demand longer term, according to the report. EVA said it expects “moderate near-term production growth as North American producers stick to financial disciplines to avoid over-investment.”
U.S. gas-weighted producers are projected to increase capital expenditures by 30% this year. However, given “the inflationary shock and a sharp decline” in drilled but uncompleted wells, “the published budget may only be able to support a moderate growth from the current production level,” according to the report.
Looking more closely at the demand side of the market, NGSA highlighted industrial consumption and exports as key growth drivers this summer. Via liquefied natural gas and via pipeline to Mexico, exports are expected to average 19.4 Bcf/d this summer, a 2.5 Bcf/d increase over the year-earlier period, according to the trade group.
Rising Industrial Demand
Industrial demand, meanwhile, is set to grow 0.7 Bcf/d, or 3%, this summer, with growth attributable to “strengthening industrial activity and higher rates of use of facilities this summer,” NGSA said. “New builds, capacity expansions and facility restarts in the natural gas-intensive petrochemical and fertilizer industries continue to contribute to industrial demand.”
Electric demand is expected to decrease slightly by 0.6 Bcf/d this summer on anticipated cooler temperatures and less coal-to-gas economic switching, the trade group said.
Still, EVA cautioned that “higher prices for replacement coal due to spikes in international coal markets will keep the competition between coal and gas tight for the summer, especially in the eastern part of the country.”
With residential/commercial demand projected to be flat summer/summer, NGSA predicted an overall increase in domestic consumption of 0.1 Bcf/d versus Summer 2021 levels.
Storage injections, meanwhile, are expected to increase 14% summer/summer, accounting for 9.8 Bcf/d on average, according to the NGSA outlook. EVA modeled a total injection of 2,096 Bcf for this summer, with U.S. working gas in storage expected to lag the five-year average throughout 2022.
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