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Abundant gas, warmer weather to lower winter heating costs, AGA says

Surging natural gas production in the U.S. has replenished gas storage levels ahead of a winter season that is forecast to be warmer than normal, putting downward pressure on heating costs even with rising LNG exports and historic domestic demand, according to the American Gas Association's 2019-2020 winter heating outlook.

The trade group, which represents more than 200 gas utility companies, projected residential gas bills would be 2% to 4% lower than the previous winter, based on a survey of its member utilities.

"The contours of this market are shaped by continual record setting," Richard Meyer, the association's, or AGA's, managing director of energy analysis, said in an Oct. 24 briefing in Washington, D.C. "Despite all of that — record production, record domestic demand, record exports — we have a solid refill in underground storage. We have good supplies headed into this winter heating season."

The modest decline in projected heating expenses coincides with a drop in gas prices. The U.S. Energy Information Administration expected benchmark Henry Hub gas prices to average $2.56/MMBtu this winter, down 24% from last winter.

The AGA cited energy efficiency as another factor in reduced costs, with a 1.3% annual reduction in normalized use per customer.

Roughly two-thirds of the gas utilities surveyed by the AGA said they expected residential heating bills to be less this winter, AGA senior analyst Brendan O'Brien said, adding that the surveyed utilities were spread across the entire country.

But just under 30% of consumer's bill reflects the commodity cost of natural gas, while the rest is attributed to storage, distribution, and corporate costs and profit, O'Brien said.

Gas demand so far in 2019 peaked at around 150 Bcf/d on Jan. 30, when the polar vortex brought Arctic temperatures to much of the Midwestern U.S. That was also the single-largest gas-consuming day in U.S. history, Meyer said. Around half that demand, 75 Bcf, was from residential and commercial customers, while gas-fired power plants consumed about 34 Bcf.

"We are in a very, very good position, and it's been proven over the last decade that our utilities are able to supply customers not only over the course of the entire winter, but on that peak of peak days," O'Brien said.

The county's total working gas storage was about 3,606 Bcf by Oct. 18, or 28 Bcf greater than the five-year average, according to the EIA. Dry gas production in the Lower 48 peaked at 92.2 Bcf on Oct. 21, Meyer said, citing S&P Global Platts data.

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Some gas market participants say the upcoming winter could offer a lesson about the sort of issues that could arise on the Gulf Coast gas grid as LNG facilities ramp up and provide an increasingly important outlet for U.S. production. The total capacity of the six operational LNG facilities in the U.S. is over 6 Bcf/d, which includes a plant in Georgia and another in Maryland in addition to the Gulf Coast facilities.The AGA's projection of easing winter heating costs was in-line with other recent outlooks by the EIA and the Natural Gas Supply Association.

That overall capacity will continue to increase as additional trains come online next year. And some in the gas industry have questioned what might happen if there is a sudden swing in regional demand caused by LNG plants going out of service because of something like heavy fog restricting vessel traffic.

This winter, the market appears prepared to adjust to various demand scenarios, Meyer said. He pointed to working gas storage levels in the South Central region of the United States, which is close to quickly growing shale supplies and where most of the growing U.S. LNG export capacity is concentrated. The most flexible salt-cavern storage facilities are below five-year average levels, while the less flexible nonsalt storage fields are above average levels.

"What this suggests to me is the market is giving itself some headroom in case you have a situation where demand doesn't materialize — if it's, say, warmer than normal or if there isn't an outlet in terms of exports or domestic demand — that there is a place for these flowing gas supplies to go," Meyer said. "This is a market that has flexibility in it."

S&P Global Market Intelligence and S&P Global Platts are owned by S&P Global Inc.