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Gas production will match record summer demand, industry group says

A record 9% increase in U.S. demand for natural gas this summer, driven largely by gas-fired power coming online coupled with growing LNG exports, will have little impact on gas prices this summer, the Natural Gas Supply Association forecast in a May 31 report.

U.S. oil and gas producers, particularly in Appalachia's shales and Texas' Permian Basin, will produce more than enough gas to meet the increased demand, the Natural Gas Supply Association, or NGSA, wrote in its outlook for the summer.

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"NGSA expects record demand in summer 2018, fueled by record growth in electric sector demand for natural gas due to massive natural gas-fired generation additions since last summer," NGSA said. The group expected gas demand for power to increase by 10% compared to summer 2017.

"An increased volume of LNG exports further contributes to this summer's demand growth, with a forecasted summer-over-summer increase of 1.6 Bcf/day — about a 76 percent increase for this young, but fast-growing market," NGSA said.

LNG's call on gas will more than double to roughly 7.5 Bcf/d by 2020, as four more export terminals are expected to join Cheniere Energy Inc.'s Sabine Pass LNG LP and Dominion Energy Inc.'s Dominion Energy Cove Point LNG LP terminals in shipping U.S. gas to the globe, NGSA said.

While increases in current LNG demand come from the inauguration of new liquefaction trains, NGSA expected exports will eventually show typical seasonal demand swings.

"Going forward, a seasonal shape could emerge for exports at terminals," according to the report, prepared by consulting firm Energy Ventures Analysis Inc. "Historically, global LNG imports exhibit a winter peak and a smaller summer peak. The gap between peak to trough is about 8 Bcf/d. The seasonal shape is mainly driven by demand in Asia and Europe. South America imports are mainly in the summer (their winter)."

Demand from the residential and commercial sector will grow by 7% in 2018, the outlook said, mainly due to a colder-than-normal April that saw demand for gas heating increase.

A healthier economy will increase demand slightly, 0.5 Bcf/d to 21 Bcf/d, in the industrial sector the report said as the energy sector picks itself up off the mat after two years and petrochemical buyers increase their purchases of gas for fertilizer and plastics, the forecast.

These market forces are expected to push overall demand to a level about 6 Bcf/d higher than demand in the summer of 2017, an increase of about 9%, and place upward pressure on gas prices, NGSA said. But oil and gas producers will drill a hole in any price hikes.

"Production is projected to smash through previous robust levels, due to increased production of both dry gas and 'wet' gas often associated with oil," NGSA said. "Dramatic increases in summer-over-summer levels of production are likely to result in downward pressure on natural gas prices."

Enough gas will be produced, primarily from Permian Basin oil wells and the Marcellus and Utica shales, to not only cover the increase in demand but also restock storage levels that fell below the five-year average after this year's heating season, according to the analysis. The pool of U.S. storage operators will need to put away an average of 70 Bcf per week to reach a nominal 3.5 Tcf by the start of the heating season this fall, the outlook said.