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EIA sees growing US gas production easing inventory gap, prices

Growing U.S. natural gas production should help ease low inventory levels in the coming injection season, the U.S. Energy Information Administration said March 12, even as it raised consumption forecasts for 2019.

"EIA continues to forecast that U.S. dry natural gas production will achieve record production levels in 2019 and 2020," Administrator Linda Capuano said in a statement accompanying the agency's March "Short-Term Energy Outlook."

"Assuming weather forecasts hold, inventories should climb back near the five-year average by the next winter heating season," Capuano said. That would put inventories at 3.6 Tcf at the end of October, just 2% below the five-year average, compared with 28% below at the end of March.

The agency raised its natural gas marketed production estimate 0.78 Bcf/d to 96.03 Bcf/d for the U.S. in the first quarter and by 0.23 Bcf/d to 97.34 Bcf/d for the second quarter.

Total marketed production is expected to climb to 97.59 Bcf/d for 2019 and to 99.19 Bcf/d in 2020, well above the 89.57 Bcf/d average in 2018.

Supply outpaces demand

With record production levels, the total supply of natural gas will outpace demand through the end of 2020, keeping prices in check even as new LNG capacity comes online, mostly in the second quarter, the EIA said.

The agency pushed its gas consumption estimates up by 2.14 Bcf/d to 101.2 Bcf/d for the first quarter, and by 1.09 Bcf/d to 72.71 Bcf/d for the second quarter. Gas demand was forecast to average 83.57 Bcf/d in 2019, rising to 83.68 in 2020, up from 81.68 Bcf/d, on average, in 2018.

The EIA lowered its forecast for the first-quarter Henry Hub gas spot prices 7 cents to $2.9/MMBtu, but the second-quarter forecast rose 6 cents from the previous month's estimate to $2.75/MMBtu.

The agency expected the Henry Hub gas price to average $2.85/MMBtu for 2019 and $2.81/MMBtu in 2020, up 2 cents and 1 cent, respectively, from the prior month's estimates, but still well below the $3.15/MMBtu average in 2018.

Generation shifts

In one notable change, the outlook expected that gas-fired electricity generation would grow 2% in 2019, which contrasts with minimal growth expected in the prior month's forecast. Coal-fired generation could fall 12% in 2019, compared to the 8% decline estimated in February. The changes are driven primarily by new gas-fired generating capacity coming online sooner than expected. The agency said the share of generation fueled by gas could rise to 37% in 2019, from 35% in 2018.

"Since 1949, the earliest year listed in EIA's monthly energy review, coal's share of U.S. utility-scale electricity generation has never dropped below 25%," Capuano said, but the March outlook "forecasts coal's share of generation to fall to 24.7% in 2019, as cost considerations continue a transition to natural gas."

Non-hydropower renewables will continue their ascent. The EIA continued to forecast that in 2019 wind's share of generation of 8% will pass hydropower's share of just under 7% for the first time. Nuclear power should stay roughly flat at the 2018 level of 19%.

With temperatures returning to normal, energy-related CO2 emissions are expected to decline 1.6% in 2019 after rising 2.9% in 2018, the EIA said.

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