US EIA boosts 2021 gas production estimate 1.43 Bcf/d, nudges up price forecast

After tightening its production forecasts in May, the US Energy Information Administration June 8 raised its estimates for US natural gas production for 2021, but lifted its spot gas price forecasts slightly for the period nonetheless.

EIA, in its June Short-Term Energy Outlook, raised by 1.85 Bcf/d to 99.36 Bcf/d its natural gas marketed production estimate and pushed up its Q3 estimate by 1.63 Bcf/d to 99.76 Bcf/d. Yearly averages for 2021 and 2022 were also revised upwards by more than 1 Bcf/d, with 99.29 Bcf/d forecast on average for 2021 and 101.17 Bcf/d expected in 2022.

The agency's gas consumption forecasts also edged up, but not to the same degree. EIA raised its natural gas consumption estimates by 170 MMcf/d to 70.7 Bcf/d for Q2, and by 250 MMcf/d to 73.94 Bcf/d for Q3. For the full year 2021, it estimated consumption would average 82.85 Bcf/d, up 210 MMcf/d from the prior month's forecast, but 0.5% below the 2020 average of 83.25 Bcf/d.

"US natural gas consumption declines in the forecast, in part, because electric power generators switch to coal from natural gas as a result of rising natural gas prices," EIA said. Outside of the power sector, EIA expected residential and commercial gas consumption would rise by 1.2 Bcf/d from 2020 levels in 2021, and industrial consumption would also grow by 700 MMcf/d.

"Rising consumption outside of the power sector results from expanding economic activity and colder winter temperatures in 2021 compared with 2020," the outlook said. The total consumption levels were expected to be flat in 2022.

LNG impact

Turning to prices, the agency has said higher prices this year mostly reflect growth in LNG exports and rising gas demand outside of the power sector.

EIA raised its forecast for Q2 Henry Hub natural gas spot prices by 8 cents to $2.86/MMBtu; the Q3 forecast also rose 2 cents from the previous month's estimates to $2.92/MMBtu.

The agency projected Henry Hub natural gas prices would average $3.07/MMBtu for full-year 2021, up 2 cents from the May estimate.

"In 2022, we expect the Henry Hub price will average $2.93/MMBtu amid slowing growth in LNG exports and rising US natural gas production," the report said.

It noted that every month since November has been among the highest months for US LNG exports on record, with May seeing an estimated 10 Bcf/d exported, a record for the month. Because of strong global demand for LNG, "we forecast that US LNG exports will continue to be high and average more than 9.0 Bcf/d during the remainder of 2021," the report said.

Following higher-than-average withdrawals in winter 2020-2021 and colder-than-average temperatures in February that dampened production, EIA estimated inventories ended May at almost 2.4 Tcf, or 3% below the five-year average.

"We forecast that inventories will end the 2021 injection season (end of October) at 3.6 Tcf, which would be 4% below the five-year average," EIA said.

Shifting fuel sources

Turning to generation, EIA forecast that natural gas would make up 36% of the generating fuels mix in 2021 and 35% in 2022, down from 39% in 2020. The prior month's outlook had estimated gas would average a 35% share for 2021 and 2022.

The agency tied the declines in use of gas to its expectations of a higher delivered price of gas for generators, which it forecast to average $4.09/MMBtu in 2021 (compared with $4.41/MMBtu included in the forecast in May).

Responding to the gas prices, the share of coal in the generation mix was seen rising to 23% in 2021 before falling to 22% in 2022.

EIA continued to highlight growth in renewables, which are expected to rise from 20% of the generation mix in 2020 to 21% in 2021 and 23% in 2022, supported by new capacity additions.

The agency said 4 GW-5 GW of small-scale solar capacity is likely to come online each year during the 2021-22 forecast period.