trending Market Intelligence /marketintelligence/en/news-insights/trending/1RUCbZ7-jyC6orP0S5T9TA2 content esgSubNav
In This List

Record US gas production to keep winter prices down, industry group outlook says

Podcast

Next in Tech | Episode 49: Carbon reduction in cloud

Blog

Using ESG Analysis to Support a Sustainable Future

Research

US utility commissioners: Who they are and how they impact regulation

Blog

Q&A: Datacenters: Energy Hogs or Sustainability Helpers?


Record US gas production to keep winter prices down, industry group outlook says

As record gas production keeps pace with historic demand, market dynamics may put continued downward pressure on gas prices this winter, according to the Natural Gas Supply Association.

The group predicted record average demand of 109.3 Bcf/d, driven largely by LNG and pipeline exports and by growing use of gas in the power sector, where 7 GW of gas-fired generation is estimated to have come online this year, according to the association's 2019-2020 winter outlook.

Tempering that expected consumption increase, however, may be warmer weather and minimal industrial demand growth, slowed by trade uncertainties, the association, or NGSA, report projected.

"The forecast for warmer weather and abundant supply ... should enable U.S. natural gas to stay even more affordable and reliable this winter while satisfying growing demand for cleaner-burning electricity, manufacturing and heating, here and around the world," said Orlando Alvarez, NGSA Chairman and head of BP's North American gas marketing and trading business.

Wholesale gas prices averaged $3.33/MMBtu last winter, the NGSA noted.

The association predicted 4% year-on-year production growth, compared with last winter's 14% uptick. The outlook relies on published data and independent analysis and is prepared by Energy Ventures Analysis. Dry gas production is slated to average a record 92 Bcf/d this winter, and associated gas production from the Permian Basin should comprise the largest increase among supply areas, supported by new pipeline connections, the outlook said.

The supply side should be supported by ample storage, with a start-of-winter inventory that is 2% above the five-year average, putting total supply at 109 Bcf/d, including 4.7 Bcf/d of imports from Canada, according to the report.

Soaking up those supplies will be net LNG exports of 8.3 Bcf/d in the upcoming winter, up from 4.5 Bcf/d last winter, according to the outlook's projections. That estimate includes expectations of new LNG export capacity starting up this winter, including 0.7 Bcf/d from Cameron LNG Train 2, along with 0.1 Bcf/d from Elba Island Phase 2 and 0.7 Bcf/d from Freeport Train 2 in January or February. Total gas exports are expected to rise 4.8 Bcf/d winter over winter, the report said.

According to S&P Global Platts Analytics, forward curve and calculated netback spreads currently support full contract dispatches of U.S. LNG capacity, with exporters likely to have already scheduled and hedged U.S. LNG sales through the end of the coming winter.

Domestically, electricity demand is also on the rise, forecasted to be 27.0 Bcf/d — up from 25.7 Bcf/d last winter — according to the NGSA outlook. Low gas prices have encouraged dispatch of gas-fired generation and amid a structural shift to additional gas-fired plant.

"On a national level, a 20 cents/MMBtu decline in gas prices would increase power burn by 1.2 Bcf/d while a 20 cents/MMBtu increase would reduce power burn by only 0.6 Bcf/d," the report said, suggesting this adds more upside potential to power burn this winter.

Customer demand is up 3% from last winter, with electricity-sector demand expected to increase 5%.

The unknown forces at play this winter will be weather, as usual, along with trade and tariff uncertainties, according to the NGSA. The tariff showdown "is not just affecting steel, it's affecting LNG, it's affecting [agricultural products]," along with manufacturing and the auto sector, Alvarez said. All told, he called the impacts a "mixed bag," raising prices for U.S. manufacturers and impacting steel prices for oil and gas producers.

Longer-term factors will be the race toward lower carbon policies and more renewables, along with opposition from some states to gas pipelines, he said. "You're starting to see this already impact investment in the natural gas industry," he said. "That's a big wild card. What's going to happen if this rhetoric continues and all these mandates really come to fruition."

Maya Weber is a reporter with S&P Global Platts. S&P Global Market Intelligence and S&P Global Platts are owned by S&P Global Inc.