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Consumption gains, slower production growth seen supporting natural gas price recovery

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Essential Energy Insights - September 17, 2020

Essential Energy Insights September 2020

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Consumption gains, slower production growth seen supporting natural gas price recovery

Naturalgas prices are expected to gradually climb as natural gas production growth slowsand summer heat supports demand, the U.S. Energy Information Administration said.

The HenryHub natural gas spot price averaged $1.92/MMBtu in April, an increase of 19cents/MMBtu from the March price, and the EIA expects that prices will graduallyrise through the summer to an average at $2.25/MMBtu in 2016 and $3.02/MMBtu in2017, the government analysts said in the agency's latest "Short-term EnergyOutlook."

Pricegains will be spearheaded by an increase in natural gas consumption beginning witha boost in summer cooling demand. The electric-power sector will be the primarydriver of natural gas consumption as sector demand is expected to increase by 4.0%in 2016. An increase of 2.4% in industrial-sector consumption helps overall year-on-yeargains in total U.S. consumption to an average 76.5 Bcf/d for the current year, from75.3 Bcf/d in 2015.

Power-sectorconsumption is expected to decline in 2017 by 1.6% as the result of rising naturalgas prices that will contribute to rising coal generation, the EIA said. Industrial-sectorconsumption of natural gas is expected to increase by 2.0% in 2017 as new fertilizerand chemical projects come online. The EIA expects U.S. total natural gas consumptionof 77.4 Bcf/d in 2017.

Alongsideconsumption gains, natural gas production forecasts support rising natural gas prices.

Althoughmarketed natural gas production was 80.1 Bcf/d in February, according to the latestNatural Gas Monthly data, the second-highest production level on record and an increaseof 1.4% from January, the EIA forecasts production to remain relatively unchangedthrough the remainder of 2016, rising by 0.9% for the year.

In 2017,however, production is expected to rise by 2.2% in response to increases in price,demand and liquefied natural gas exports.

The EIAsees U.S. pipeline exports to Mexico increasing as the result of growing demandfrom Mexico's electric power sector and flat natural gas production in Mexico.

LNG grossexports will increase to an average of 0.5 Bcf/d in 2016, with the startup of 's Sabine PassLNG liquefaction plant in Louisiana, which sent out its first cargo in February.EIA projects that gross LNG exports will average 1.3 Bcf/d in 2017 as Sabine Passramps up its capacity.

Whileconsumption and production outlooks point to rising prices, natural gas inventories could provide a headwind to pricerecovery. The EIA expects natural gas inventories at 4,158 Bcf to start the winterheating season. This would be the highest level on record to begin the heating season,the EIA said.