Shrinking production, growing exports and somewhat colder weather should see this winter’s natural gas prices trend upward compared with last winter, even as the Covid-19 pandemic threatens to hinder demand, according to new projections from the Natural Gas Supply Association (NGSA).
Total exports, both by way of liquefied natural gas (LNG) terminals and via pipeline to Mexico, should reach new highs this winter, growing to 14.8 Bcf/d in Winter 2020/21m compared with 13.6 Bcf/d in Winter 2019/20, the trade group said in its latest annual winter outlook, published Thursday.
Lower 48 production, meanwhile, is expected to fall to 86.0 Bcf/d on average this winter, down from 94.2 Bcf/d in the year-ago period, with the decrease driven by declines in associated gas production from oil-directed drilling.
However, not all factors weigh in favor of the bulls heading into the upcoming heating season.
Higher prices should put a clamp on economic switching in the electric generation sector, helping drive down power burns to 26.6 Bcf/d, versus 28.9 Bcf/d a year ago. With small increases in residential/commercial and industrial demand expected, this would leave overall domestic demand down to 88.2 Bcf/d for Winter 2020/21, compared with 89.7 Bcf/d in the prior winter, NGSA projections show.
This comes as plump storage levels — expected to enter Winter 2020/21 at 4,008 Bcf, or 9% higher than the five-year average — and higher imports figure to offset the winter/winter production declines, according to the trade group.
Meanwhile, Mother Nature has a habit of defying any long-term predictions, but nonetheless Winter 2020/21 weather is shaping up to produce 3,433 heating degree days, according to NGSA. That would be 4% colder than the previous winter, which produced 3,294 heating degree days and was the sixth warmest on record.
Natural gas prices this winter are poised to increase over year-ago levels, but Winter 2019/20 set a low hurdle to clear, with Henry Hub averaging only $2.08/MMBtu. Of course, the macroeconomic factors during a pandemic, including expectations for falling gross domestic product and rising unemployment this winter compared to last year, don’t offer much encouragement.
“While the Covid-19 pandemic has made economic forecasting as challenging as forecasting the weather, the fundamentals in the outlook show market resiliency that should provide certainty to consumers this winter,” said NGSA Chairman Orlando Alvarez, who heads BP plc’s North American gas marketing and trading business.
Weather is the perennial wild card for natural gas prices, but this year a possible wave of new Covid-19 cases adds another unpredictable element that could roil the natural gas market this winter. The pandemic also creates lingering uncertainty over the U.S. LNG export outlook.
Energy Ventures Analysis, in a report prepared for NGSA, said it expects U.S. LNG feed gas demand, which fell sharply over the summer, to “continue to grow steadily” in 4Q2020, with the caveat that this assumes there is “no major demand destruction event.” Growth projections in the fourth quarter reflect increased liquefaction capacity and “strengthening LNG pricing fundamentals.
“Natural gas storage in key markets that have been balanced out quickly could also strengthen U.S. LNG demand,” the firm said. “However, the potential resurgence of Covid-19 remains a wild card. After three years of steady growth, the U.S. may become a marginal supplier in 2020/21, with swinging utilization rates before demand fully recovers.”
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