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NGSA Expects Fuel Switching to Decline from Last Summer
The Natural Gas Supply Association (NGSA) expects there to be only “slightly upward pressure” on natural gas prices this summer compared to the summer of 2012 due to an anticipated drop in coal-to-gas switching by power generators and cooler temperatures early this summer.
“The summer of 2012 had more than double the highest amount of fuel switching than ever before, the result of last summer’s extreme heat and mid-$2/MMBtu natural gas prices. In contrast, NGSA [forecasts] that electric utilities [this summer] will not fuel switch as much as summer 2012’s record-breaking 6.2 Bcf/d, but that fuel switching will take place at a rate of 2.6 Bcf/d, a rate very similar to [the] summer of 2011,” the producer group said in its “2013 Summer Outlook.”
NGSA projects that overall demand for natural gas will average 62 Bcf/d over the summer, slightly lower than last summer but not enough to place either upward or downward pressure on summer-over-summer prices. The group said demand for natural gas will increase the most in the residential and commercial markets, which are projected to grow 10% compared to last summer, primarily because of the cold weather in the early “summer” months of April and May. Industry demand also is likely to grow by 4% compared to summer 2012.
However, gas demand growth in the residential, commercial and industrial sectors will not be large enough to offset the expected decrease in electric demand resulting from cooler temperatures and less coal-to-gas switching.
NGSA is forecasting that production will reach 67 Bcf/d this summer, compared to the year-ago average of 66 Bcf/d. Even though drilling activity has slowed, “production is supported by the large number of new pipelines and infrastructure being completed and providing takeaway capacity to natural gas wells that have been waiting to be hooked up,” the outlook said.
“We expect production to remain high even though there is less drilling activity than last summer. We project that the drop in rig activity will be offset by the construction of numerous new pipelines and processing plants designed to carry previously stranded natural gas away from the Marcellus and other production areas,” said NGSA Chairman Greg Vesey, vice president of gas supply and trading for Chevron Corp.
As for storage, the 2013 injection season began at about 1,700 Bcf, considerably lower than last summer’s initial high of nearly 2,500 Bcf/d. NGSA expects storage to reach 3,900 Bcf by the start of winter (Nov. 1). The pace of storage injections is expected to place some upward pressure on gas prices compared to summer 2012, the group said.
The “wild cards” that would significantly affect NGSA’s summer outlook are natural disasters, extreme weather events and slower-than-expected production volume increases.
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