U.S. natural gas prices are expected to increase in 2021 and 2022 compared to the record lows of last year, driven mainly by a boom in liquefied natural gas (LNG) exports and domestic consumption, according to the Energy Information Administration (EIA).
The EIA forecast 2021 Henry Hub spot prices to average $3.07/MMBtu this year in its June Short-Term Energy Outlook (STEO), an increase of $1.04 from the lows of 2020. The latest forecast for 2021 prices also comes in slightly higher than the $3.05 average Henry Hub price forecast last month.
EIA said the increase in U.S. gas demand this year is primarily the result of a 3.8 Bcf/d increase in exports. The agency expects combined pipeline and LNG exports to average 18.3 Bcf/d in 2021 and 18.4 Bcf/d in 2022, far above the current record of 14.4 Bcf/d set last year.
The global gas market is tight as weather heats up across the Northern Hemisphere. The front-month Title Transfer Facility contract in Europe moved higher for a fifth day on Wednesday and is trading at 13-year highs close to $11/MMBtu. Storage inventories remain low on the continent, which is competing for LNG with Asia, setting up what could also be a tight winter.
Japan-Korea Marker spot prices held gains Wednesday and were assessed well above $12 at an eight-year seasonal high. Price premiums there, coupled with strong demand in Latin America, is attracting U.S. LNG cargoes.
The arbitrage spread between U.S. Gulf Coast export terminals and the European market is at its highest point ever at nearly $7, according to NGI data.
EIA also expects the industrial, residential and commercial sectors to contribute to natural gas demand this year as the country recovers from the pandemic. Higher prices, however, may cut natural gas consumption in the power sector.
Henry Hub average spot prices are expected to decrease to $2.93 in 2022, according to the STEO. While above last year’s levels, prices are forecast to decline in 2022 as natural gas supply is forecast to outpace demand.
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