U.S. natural gas spot prices are set to average $5.53/MMBtu over the next few months as near-average winter inventory draws and higher liquefied natural gas (LNG) exports figure to help keep prices elevated into early 2022, the Energy Information Administration (EIA) said Tuesday.

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In its latest Short-Term Energy Outlook (STEO), EIA reported an average Henry Hub spot price of $5.51 for October, up from $5.16 in September and well above the $3.25 average seen through the first half of 2021.

The steep gains for the domestic benchmark in recent months have coincided with continued power generation demand for the fuel even at higher prices, along with strong demand for LNG overseas, according to EIA.

The latest STEO calls for Henry Hub prices to average $5.53 during November through February before declining to an average of $3.93 in 2022 amid higher production and slowing growth in LNG exports.

EIA said it expects withdrawals from Lower 48 natural gas stocks this winter to come in close to five-year average levels.

“We expect that factor, along with rising U.S. natural gas exports and relatively flat production through March, will keep U.S. natural gas prices near recent levels before downward price pressures emerge,” researchers said. “Because of uncertainty around seasonal demand, we expect natural gas prices to remain volatile over the coming months, with winter temperatures to be a key driver of demand and prices.”

Natural gas prices in Mexico are closely tied to U.S. benchmarks, as Mexico has become increasingly reliant on gas imported via pipeline from its neighbor to the north.

“For almost every month so far this year for which we have data, which goes through August, pipeline exports to Mexico have exceeded their three-year [2018-2020] maximum levels,” said EIA’s Corrina Ricker, lead natural gas modeler, at the U.S.-Mexico LDC Forum in San Antonio, TX, this week. 

The only exception was February, when pipeline exports were impacted by Winter Storm Uri. The August total was 193.3 Bcf, or 6.2 Bcf/d.

EIA expects continued growth in pipeline gas exports to Mexico, “even though we’re not expecting additional pipeline export capacity to be built from the U.S. to Mexico in our forecast,” Ricker said. She explained, “what’s driving the increase in exports to Mexico is the development of…gas infrastructure within Mexico itself, which will boost utilization of pipelines from the U.S. to Mexico.”

Ricker said that about 98% of Mexico’s gas imports now arrive via pipelines, which have largely displaced LNG imports to the Manzanillo and Altamira terminals on Mexico’s Pacific and Atlantic coasts, respectively. The Sur de Texas-Tuxpan and Trans-Pecos/Wahalajara systems have been the main driver of this trend in terms of cross-border pipelines, she said. 

Ricker said that the completion of pending infrastructure projects within Mexico such as TC Energy Corp.’s Tula-Villa de Reyes pipeline and Kinder Morgan Inc.’s expansion of its Mier-Monterrey system.

How Much Did LNG Exports Increase?

Wide differentials between domestic and overseas prices supported a sequential increase in LNG exports in October, with exports up 0.3 Bcf/d to 9.8 Bcf/d on average, according to the latest STEO. Exports are set to increase further this winter, averaging 11.0 Bcf/d from November through March, EIA said.

“We expect high levels of LNG exports to continue into 2022, averaging 11.5 Bcf/d for the year, up 17% from 2021,” researchers said. “The forecast reflects our assumption that global natural gas demand remains high and several new liquefaction trains…enter service.”

Lower 48 storage exited October at more than 3.6 Tcf, or 3% below the five-year average. Injections lagged the five-year average during the summer, but “in recent weeks, storage levels have moved closer to average levels as injections outpaced the five-year average in September and October,” EIA noted. 

The agency predicted a total 2.1 Tcf draw on inventories for the winter, which would put end-March stockpiles at 1.6 Tcf, or 4% below the prior five-year average.

Domestic dry natural gas production rose to 94.9 Bcf/d on average in October from 94.5 Bcf/d in September, EIA said. Output average 91.9 Bcf/d for the first half of 2021. 

EIA said it expects production to climb to 95.2 Bcf/d on average through the remainder of the November-March heating season. Supply is then poised to rise to 96.7 Bcf/d for 2022 overall, a result of strong commodity prices incentivizing enough drilling gains to grow production, according to the agency.

With additional reporting by Andrew Baker