US EIA lowers Q4 Henry Hub spot gas price, expects winter volatility

The US Energy Information Administration Nov. 9 lowered its forecast Henry Hub natural gas spot prices by 26 cents to $5.54/MMBtu for the fourth quarter of 2021, and it dropped its Q1 forecast 29 cents from the previous month's estimates to $5.24/MMBtu.

But the weather will be a wild card for gas prices this winter, EIA said in its November Short-Term Energy Outlook. "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," EIA said.

The Henry Hub spot price will average $5.53/MMBtu from November through February, EIA noted. "We forecast that US inventory draws will be similar to the five-year average this winter, and we expect that factor, along with rising US natural gas exports and relatively flat production through March, will keep US natural gas prices near recent levels before downward prices pressures emerge," EIA said.

Gas prices will generally decline through 2022, amid rising US gas production and slowing growth in LNG exports, EIA said. The agency projected Henry Hub gas prices would average $4.10/MMBtu for full-year 2021 and $3.93/MMBtu in 2022, down from the previous month's estimates of $4.17/MMBtu in 2021 and $4.01/MMBtu in 2022.

LNG exports are forecast to average 9.8 Bcf/d for all of 2021, up 50% from 2020, EIA said. And LNG exports will increase this winter, averaging 11 Bcf/d from November through March, the agency said. High levels of exports will continue into 2022, averaging 11.5 Bcf/d for the year, up 17% from 2021, EIA said.

EIA raised by 1.38 Bcf/d to 102.98 Bcf/d its gas marketed production estimate for Q4. And the agency also increased its Q1 2022 production forecast by 1.1 Bcf/d to 103.49 Bcf/d. The increase in production is driven by natural gas and crude oil prices, which are expected to remain at levels that will support enough drilling to sustain production growth, EIA said.

Gas use for power generation in October was 1.9 Bcf/d higher than EIA had forecast in last month's outlook, the agency said. "Higher-than-expected natural gas use in the electric power sector reflects limited natural gas-to-coal switching capabilities across the country, several planned nuclear outages in October and lower-than-forecast electricity generation from wind," EIA said.

Despite higher-than-expected power burn, the lower-than-average consumption in the residential and commercial sectors due to mild October weather opened the door for gas inventories to grow by 343 Bcf during October, 34% more than the five-year average build from September to October, EIA said.

The agency lowered its gas consumption estimates by 0.77 Bcf/d to 86.11 Bcf/d for Q4, but increased its consumption forecast by 0.35 Bcf/d to 96.77 Bcf/d for Q1.

The share of electricity generation from natural gas in the US is expected to decline in 2021, due to higher delivered natural gas prices for electricity generators, EIA said. The agency expects natural gas to account for 36% of generation in 2021, and 35% in 2022, down from 39% in 2020.

Meanwhile, coal is expected to get a boost. "As a result of the higher expected natural gas prices, the forecast share of electricity generation from coal rises from 20% in 2020 to about 23% in 2021 and 22% in 2022," EIA said.

But coal's share of the generation mix has not increased as much in response to rising gas prices as EIA had expected earlier this year, the agency said. "The lower price responsiveness of coal for electricity generation, which is likely the result of constraints on coal supply and low coal stocks, is contributing to upward pressure on natural gas prices," EIA said.

Turning to renewables, new additions in solar and wind capacity are offset somewhat by reduced hydropower generation this year, resulting in a forecast renewable share of 20% in 2021, about the same as last year, before increasing to 22% in 2022, EIA said.

EIA estimates the power sector added 14.6 GW of wind capacity in 2020, and the agency expects 17 GW of new wind to come online in 2021 and 6.9 GW in 2022. Meanwhile, utility-scale solar grew by an estimated 10.5 GW in 2020, and it is expected to increase by 15.7 GW in 2021 and 18.2 GW in 2022, EIA said.