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EIA lowers Henry Hub price forecast for rest of 2019

Citing late-July natural gas price decreases and expectations of production growth, the U.S. Energy Information Administration on Aug. 6 lowered its Henry Hub spot price forecasts for the second half.

In its August "Short-Term Energy Outlook," the agency trimmed the forecast for the third quarter's Henry Hub natural gas spot prices by 6 cents to $2.29/MMBtu. The fourth-quarter price forecast also fell 22 cents from the previous month's estimates to $2.43/MMBtu.

The forecast adjustments came as the EIA separately tried to increase visibility into wholesale electricity prices with the release of new regional price forecasts and analyses.

Addressing the trimmed natural gas price forecasts, the EIA said robust dry gas production growth has exceeded the agency's July forecast.

The agency projected that Henry Hub natural gas prices would average $2.55/MMBtu for full year 2019 and $2.75/MMBtu in 2020, down from the previous month's estimates of $2.62/MMBtu and $2.77/MMBtu, respectively.

"Despite the near-term reductions in prices, EIA expects natural gas prices to recover somewhat in 2020 because gas production models indicate that rising prices are required in the coming quarters to bring supply into balance with rising domestic and export demand in 2020," EIA Administrator Linda Capuano said.

Total natural gas marketed production estimates were scaled back, however. The EIA lowered its U.S. production estimate for the third quarter by 0.69 Bcf/d to 98.66 Bcf/d and for the fourth quarter by 0.21 Bcf/d to 100.33 Bcf/d.

As for natural gas consumption, the agency raised estimates by 0.49 Bcf/d to 76.55 Bcf/d for the third quarter and by 0.91 Bcf/d to 89.07 Bcf/d for the fourth quarter.

"EIA estimates that the U.S. power sector set a record for natural gas consumption in response to the mid-July heat wave. Despite the record consumption, inventories ended the month 4% below the five-year [average], compared with 19% below the five-year average a year earlier, because of record natural gas production," Capuano said.

Natural gas inventories were expected to rise to more than 3.7 Tcf at the end of October, 16% higher than October 2018 levels and just above the five-year average.

In its electricity forecast, the EIA said lower costs for natural gas are driving its expectation that annual average wholesale prices will be lower in 2019 across the U.S. Highlighting the new regional forecasts, Capuano said that from 2018 to 2019, "prices in Texas are forecast to decrease by 28%, compared to a 0.2% decline in the Southwest." Gas-fired power plants were expected to make up 37% of utility-scale generation in 2019 and then "decline slightly" in 2020, while coal was seen averaging 24% in 2019 and 2020.

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.