Washington — Rising domestic demand for natural gas and improved LNG exports heading into the winter are likely to combine with declining production to push up Henry Hub spot prices to average $3.38/MMBtu in January 2021, the US Energy Information Administration said Oct. 6.
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In its October Short-term Energy Outlook, EIA also forecast that spot gas prices would stay above $3.00/MMBtu throughout 2021.
Total market production was estimated to decline from an average of 100.04 Bcf/d in 2019 to 93.88 Bcf/d in 2020 and 94.38 in 2021, although the levels were up from the prior forecast. EIA raised its fourth quarterproduction estimate by 2.15 Bcf/d to 96.48 Bcf/d and its its Q1-21 production forecast by 1.24 Bcf/d to 94.04 Bcf/d.
Increasing price pressure
Lower gas prices in September reflected high inventory levels and relatively low demand for US LNG exports amid hurricane-related activity in the Gulf of Mexico, EIA Administrator Linda Capuano said in a statement accompanying the release of report, as well as EIA's winter fuels outlook Oct. 6.
The agency lowered the Q4 spot gas prices forecast by 23 cents to $2.68/MMBtu, and the Q1 forecast by 2 cents to $3.31/MMBtu, compared with the prior month's forecast.
But, "EIA expects that rising demand heading into winter, combined with reduced production, will increase Henry Hub natural gas spot prices to $3.38/MMBtu in January 2021." Capuano said.
Compared with last month's forecast, EIA raised its natural gas consumption estimates by 2.74 Bcf/d to 87.28 Bcf/d for Q4, but lowered its estimate for Q1 by 320 MMcf/d to 93.86 Bcf/d.
Gas consumption is expected to average 78.7 Bcf/d in 2021, down 5.9%, the report said reflecting higher natural gas prices that will cut into demand for gas in the power sector.
EIA officials, in an online forum Oct. 6, emphasized the October outlook remains subject to significant uncertainty because of the pandemic.
"The domestic and global macro economies remain the biggest unknowns at this point," said Steve Harvey, EIA assistant administrator for energy statistics.
Despite falling production in 2020, lower LNG exports in September contributed to high gas inventories, EIA said, forecasting that inventories at the end of October could be the highest on record for any month, exceeding 4.0 Tcf.
"As colder temperatures and lower production increase natural gas withdrawals from storage this winter, EIA estimates natural gas inventories will end March 2021 6% lower than the five-year (2015-2019) average," Capuano said.
The outlook noted that the spread between the October 2020 futures contract and the January 2021 delivery was more than three times the average in September, reflecting the current high level of inventories combined with expectations the market will tighten.
LNG shifting dynamics
LNG exports are seen returning to pre-pandemic levels by November, and averaging more than 9 Bcf/d from December 2020 through February 2021, the report said.
Harvey said EIA sees gas exports growing 12.5% between 2019 and 2020 to 14.4 Bcf/d, and then again by 20.6% in 2021 to 17.3 Bcf/d.
"In effect, the share of natural gas consumption and exports that is made up of exports rises from 13% in 2019 to almost 18% in 2021," he said. "I can't underscore how important this shift is—significantly changing the risks associated with overall consumption in the forecast. That's about 5% of the disposition of natural gas we think will be directly affected by international economics.
Winter fuels outlook
Heading into the winter, EIA also released a winter fuels outlook that forecast increased residential consumption of energy because more people are at home and forecasts call for colder winter temperatures.
The price of natural gas delivered for electric generators this winter is expected to be 33% higher than last winter, trimming the share of gas-fired generation from 38% to 34%, EIA said. Renewables' share of the generation mix this winter is seen climbing to 22%, from 19% last winter, while coal generation gains also ground from 21% to 23%.
Overall, gas-fired generation is seen averaging 24% in 2021, up from the 22% estimated in the prior month's Short-Term Energy Outlook.
This winter, "EIA expects the 2% decrease in [residential] natural gas prices will be offset by an 8% increase in [residential] consumption this winter, and, as a result, we estimate that US households that primarily heat with natural gas will spend 6% more this winter than last," said Capuano.
Overall, "EIA forecasts a 2.2% decline in US electricity consumption in 2020 compared with 2019 and we expect very little change in 2021," Capuano said. Higher consumption in early 2021 is mostly offset by lower use in Q3 amid lower cooling demand, according to EIA.