US EIA trims 2020 gas production, price forecasts; expects increases in 2021

Washington — Amid weak gas and power demand, the US Energy Information Administration on June 9 cut its forecast for total US natural gas marketed production for the remainder of the year, even as it expected production to rise beginning in the second quarter of 2021 propelled by higher prices.

EIA, in its June Short-Term Energy Outlook, lowered by 600 MMcf/d, to 97.78 Bcf/d, its gas marketed production estimate in Q2-20 and trimmed by 160 MMcf/d, to 94.98 Bcf/d, the estimate for Q3.

The production forecast for 2020 on average was lowered 280 MMcf/d, to 96.79 Bcf/d, but raised by 460 MMcf/d, to 92.4 Bcf/d, for 2021.

"EIA continues to forecast a decline in US dry as production from 2019 record levels, as low natural gas demand continues to put downward pressure on prices," EIA Administrator Linda Capuano said in a statement accompanying the STEO report.

PRICE SHIFTS

Gas price forecasts for the rest of 2020 were also lowered from May estimates.

EIA cut its forecast for Q2 Henry Hub spot prices by 12 cents to $1.73/MMBtu and it lowered the Q3 forecast 21 cents to $1.90/MMBtu.

The agency projected Henry Hub natural gas prices would average $2.04/MMBtu for full-year 2020 and $3.08/MMBtu in 2021, in contrast with the May estimates of $2.14/MMBtu and $2.89/MMBtu, respectively.

The sharpest increases in gas prices are expected this fall and winter, moving from an average of $2.06/MMBtu in September to $3.08/MMBtu in January, EIA said. It pointed to rising demand heading into winter, combined with reduced production putting upward pressure on prices, despite a forecast for record storage.

The inventories, starting June at 18% above the five-year average, are expected to reach a record of more than 4.1 Tcf on October 31, according to the report.

GAS GENERATION RECORD

Generally lower gas prices, however, are seen giving a bump to gas-fired generation.

"As a result of low natural gas prices, EIA forecasts that electricity generation from natural gas in the United States will reach 1,505 billion kWh in 2020 — a new record," Capuano said. "Natural gas generation will then decline to 1,335 billion kWh in 2021 as natural gas prices increase."

With renewable generation also continuing as the fastest-growing source of new generation, coal is expected to take a hit.

"Coal's forecast share of electricity generation falls from 24% in 2019 to 17% in 2020 and then increases to 20% in 2021," according to the report.

The share of gas-fired generation is seen rising to 41% this year, from 37% in 2019, but declining again to 36% in 2021 when gas prices rise.

RENEWABLES OUTSHINING COAL

Renewables, by contrast, are seen charting a steady rise from 17% of the generating mix in 2019 to 21% in 2020 and to 23% in 2021.

"If realized, 2020 would mark the first year on record that renewable electricity generation surpasses coal," Capuano said.

Forecasts of 23.2 GW of new wind capacity and 12.6 GW of new solar are described as "subject to a high degree of uncertainty," however.

Nuclear generation is expected to see slight declines in 2020 and 2021 but increase its share of the generating mix from 20% in 2019 to 22% in 2020 and 21% in 2021.

CONSUMPTION

On the demand side, overall natural gas consumption is expected to average 81.87 Bcf/d in 2020, down 3.6% from the 2019 level of 84.97 Bcf/d. Industrial gas consumption is forecast to decline 8.7%, compared with 7.1% in the May STEO, driven by lower levels of assumed economic activity.

Even so, EIA raised its Q2 gas consumption estimates by 180 MMcf/d, to 71.78 Bcf/d, and by 320 MMcf/d, to 73.24 Bcf/d, for Q3. Average 2020 gas demand estimates were raised 180 MMcf/d, to 81.87 Bcf/d, while 2021 estimates were lowered 510 MMcf/d to 78.66 Bcf/d.

Based on lower global demand for gas, EIA forecast that LNG exports in Q3 will average 3.7 Bcf/d, down 1.2 Bcf/d from the May forecasts.

US electricity consumption is also forecast to be 5.7% lower in 2020 than in 2019, with the commercial sector seeing the largest declines in retail sales, of 9.1%. Retail electricity sales were pulled lower, down 5.5% from 2019 levels, versus 4.5% in May report, on updated macroeconomic projections for larger GDP declines.