Anticipating growing US natural gas production that will top prior highs, the US Energy Information Administration scaled back its near-term natural gas price forecasts, expecting Henry Hub spot prices will average $4.90/MMBtu in 2023, down from $6.42/MMBtu in 2022.
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In its January Short-Term Energy Outlook, the EIA Jan. 10 lowered its first-quarter 2023 forecast for Henry Hub spot prices by $1.18 to $4.99/MMBtu. The Q2 forecast also fell 25 cents from the previous month's estimates to $4.75/MMBtu.
"The natural gas market is particularly uncertain, but we expect that US natural gas production will establish new record highs in both 2023 and 2024, leading to lower domestic prices," said EIA Administrator Joe DeCarolis, in a statement released alongside the report.
The EIA boosted its total natural gas marketed production forecast for 2023 by 2.36 Bcf/d to 109.11 Bcf/d on average and estimated production will grow further to average 111.24 Bcf/d in 2024.
For the first half of 2023, the agency lifted the Q1 production estimate by 980 MMcf/d to 109.58 Bcf/d, and the Q2 forecast by 340 MMcf/d to 108.6 MMcf/d.
"Increases in US natural gas production, relatively flat LNG exports, and declining domestic consumption in the electric power and industrial sectors will limit upward pressure on prices in 2023," according to the report.
Henry Hub natural gas prices were forecast to average $4.90/MMBtu for full-year 2023 and $4.80/MMBtu in 2024, down from the previous month's estimates of $5.43/MMBtu in 2023.
Looking ahead this winter, the EIA expected prices will once again top $5.00/MMBtu in late-January, continuing into February, amid colder temperatures and the potential return to service of Freeport LNG. The agency saw the potential for regional price spikes and volatility in areas like New England if extreme weather returns, while further delays at Freeport also could add downward pressure in the near term.
In 2024, even as new LNG export facilities are slated to come online, the agency is expecting robust production will keep gas prices "relatively flat—with the possibility of lower prices." Permian and Haynesville production is forecast to rise as more pipeline expansions are completed in 2023 and 2024, the EIA said.
After US domestic consumption of gas averaged 88.72 Bcf/d in 2022, it is likely to decline to an average of 86.74 in 2023, and slip further to 85.79 Bcf/d in 2024, the EIA said.
For the first half of 2023, agency lowered its gas consumption estimates by 260 MMcf/d to 102.2 Bcf/d for Q1, while raising its estimate for Q2 by 1.78 Bcf/d to 74.66 Bcf/d for Q2.
In February, the EIA forecast that residential and commercial gas consumption would average 43 Bcf/d, below the five-year average.
Adding to the demand pull, however, gross LNG exports are forecast to average 12.06 Bcf/d in 2023 and 12.59 Bcf/d in 2024, up from 10.65 Bcf/d in 2022.
As for the power sector, the EIA said that after a 3% rise in total US electricity consumption in 2022, US power use will fall 1% in 2023, and grow by just over 1% in 2024. Softer demand reflects expectations of a milder summer in 2023, and trends in housing starts are seen resuming growth in 2024.
Coal-fired generation is expected to continue its slump, falling from 20% of the US generating mix in 2022 to 18% in 2023 and 17% in 2024. Renewables, by contrast, will continue their ascent, according to the outlook, reaching 24% of the mix in 2023 and 26% in 2024, while gas declines to 38% in 2023 and 37% in 2024.
"About two-thirds of the forecast increase in renewables generation comes from new utility-scale solar photovoltaic capacity, and most of the rest is from new wind projects," EIA said in its statement.