Rising demand for natural gas heading into winter months, combined with reduced production, is likely to put upward pressure on prices, lifting the total 2020 Henry Hub spot price average to $2.03/MMBtu, with 2021 expected to average $3.14/MMBtu, according to the Energy Information Administration (EIA).
That 2020 estimate, which is included in a Short-Term Energy Outlook (STEO) released by EIA Tuesday, is a dime higher than the agency forecast in its previous STEO. Likewise, the 2021 estimate is up four cents from the previous STEO.
But the report came with a note of caution to industry observers.
“The August STEO remains subject to heightened levels of uncertainty because mitigation and reopening efforts related to the 2019 novel coronavirus disease (Covid-19) continue to evolve,” EIA said. “Reduced economic activity related to the Covid-19 pandemic has caused changes in energy demand and supply patterns in 2020.
“Uncertainties persist across the U.S. Energy Information Administration’s outlook for all energy sources, including liquid fuels, natural gas, electricity, coal, and renewables. The STEO is based on U.S. macroeconomic forecasts by IHS Markit, which assume U.S. gross domestic product declined by 5.2% in the first half of 2020 from the same period a year ago and will rise from the third quarter of 2020 through 2021.”
The front-month natural gas futures contract for delivery at the Henry Hub settled at $2.17/MMBtu on Aug. 6, up 49 cents/MMBtu from July 1. Before Aug. 3, the front-month futures price had settled higher than $2/MMBtu only once since Jan. 17, EIA said. The Henry Hub spot price averaged $1.77/MMBtu in July.
Prices received support from strong demand from gas-fired power generation. EIA estimates that natural gas consumption for power generation rose to 43.6 Bcf/d in July, higher than any month on record.
“The natural gas 1st–13th futures contract price spread fell to -$1.02/MMBtu on June 25, 2020, the lowest level since June 13, 2012,” EIA said. “A negative 1st–13th futures price spread typically indicates that current inventories and supplies are ample to meet expected demand. This price spread declined in January and February 2020 after mild winter weather reduced natural gas demand, and it fell further in the spring after responses to the coronavirus pandemic lowered expectations for natural gas consumption and LNG exports. However, the 1st–13th futures price spread reversed course and increased sharply in the first week of August, settling -$0.52/MMBtu on Aug. 6, 2020. Declining natural gas production and robust demand for natural gas for power generation contributed to higher near-term prices.”
EIA expects natural gas prices will generally rise through the end of 2021, with the sharpest increases coming during this fall and winter when they are expected to rise from an average of $2.11/MMBtu in September to $3.14/MMBtu in February.
EIA estimates that U.S. liquefied natural gas (LNG) exports will average 5.5 Bcf/d this year and 7.3 Bcf/d next year. LNG exports will decline through the end of the summer as a result of reduced global demand for natural gas, the agency said.
In July LNG exports averaged 3.1 Bcf/d, “which is about the same as in May 2018, when the available liquefaction capacity was about one-third of the current capacity,” EIA said.
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