US EIA trims gas price forecasts, sees increases ahead as production declines

Washington — The US Energy Information Administration on Wednesday lowered its forecasts for Henry Hub spot natural gas prices forecasts for the first two quarters of 2020, but predicted prices will rise in the second quarter as production declines and more gas is used for power generation.

EIA, in its March Short-Term Energy Outlook, also pushed up its estimates for production and consumption this year, compared with prior month estimates.

EIA cut its forecast for Q2 Henry Hub natural gas spot prices 18 cents to $1.91/MMBtu, while the Q1 forecast also fell 9 cents from the previous month to $1.89/MMBtu.

"Warmer-than-normal February temperatures reduced demand for space heating in the US, keeping natural gas prices at historically low levels," said EIA Administrator Linda Capuano. "We expect prices to rise in the second quarter of 2020 as natural gas used for power generation increases and US production decreases."

The agency projected Henry Hub prices would average $2.11/MMBtu for full-year 2020 and $2.51/MMBtu in 2021. That's down from $2.57/MMBtu in 2019.

PRODUCTION

The agency raised its natural gas marketed production estimate by 1.31 Bcf/d to 103.65 Bcf/d and its Q2 production forecast by 1.80 Bcf/d to 103.33 Bcf/d. The full-year 2020 production forecast also rose by 1.15 Bcf/d to 102.51 Bcf/d.

Nonetheless EIA saw production declines ahead. "Although we forecast that US dry natural gas production will increase by 3% from 2019 to 95.3 Bcf/d in 2020, monthly production should generally decline through 2020," Capuano said. "If 2021 production averages 92.6 Bcf/d as forecast, it would be the first decline in average annual US natural gas production since 2016."

Production declines were mostly expected in the Appalachian region, as low gas prices discourage gas-directed drilling, and in the Permian, as low oil prices reduce associated gas output.

But in 2021, higher prices are expected to drive dry gas production above December 2020 levels, EIA said.

Also on the supply side, EIA expects the US to end March with 12% more working natural gas in storage than for the previous five-year average for this time of year. And inventories are seen rising by almost 2.1 Tcf through the injection season, nearing 4 Tcf by October 31.

DELAYED RELEASE

The outlook, traditionally released Tuesday, was delayed a day in response to the historic price decline that followed the collapse of the OPEC+ production agreement Friday and the ongoing battle for market share between Saudi Arabia and Russia.

US oil production, which EIA forecast last month would cross the 14 million b/d threshold in late 2021, is now forecast to peak just above 13.2 million b/d next month and then fall as much as 660,000 b/d into 2021 as US shale operators struggle with low prices, the agency said.

EIA said it now expects US oil output to average 12.99 million b/d in 2020 and 12.66 million b/d, down 210,000 b/d and 900,000 b/d, respectively, from last month's forecast. It would be the first year-on-year decrease in US oil output since 2016, EIA said.

The agency raised its gas consumption estimates 0.95 Bcf/d to 77.47 Bcf/d for Q2, and 1.98 Bcf/d to 105.09 Bcf/d for Q1. Gas consumption is seen averaging 87.27 Bcf/d in 2020 (up from 84.97 Bcf/d in 2019), before declining to 85.61 Bcf/d in 2021.

GENERATION

Low gas prices in 2020 were seen stimulating the use of gas for generation, which is seen rising 4% to 1.53 trillion kWh compared with 2019 data.

The share of utility-scale generation from natural gas was expected to be 39% in 2020, up from 37% in 2019, before returning to 37% in 2021. The prior month's estimate had gas at 38% of the generating mix in 2020. Renewable energy sources, which made up 17% in 2019, are seen rising to 19% in 2020 and then 21% in 2021.

Declining energy consumption because of energy efficiency and weather effects are expected to help drive down CO2 emissions in 2020, as January and February saw warmer-than-normal weather. EIA expected that energy-related CO2 emissions would decline 2.2% in 2020 and then 0.4% in 2021, when temperatures are expected to return to normal.