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Trade group expects flat winter gas prices as production offsets demand

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Trade group expects flat winter gas prices as production offsets demand

Record winter demand for natural gas likely will be offset by surging production, robust storage and Canadian imports, leaving prices essentially on par with last year, according to the Natural Gas Supply Association's 2017-18 winter outlook.

The outlook, released Oct. 4, looked at the combined effect of weather, economic growth, consumer demand, storage and supplies, as well as the impact of recent hurricanes. Assessing the upward and downward pressure on prices in each of those categories, this year's outlook predicted "flat pressure" on prices compared with last winter.

"I think the key story is we have a big increase in demand and a big increase in supply to match it. And between the two, it's a neutral impact on prices," said Scott Moore, chairman of Natural Gas Supply Assocation and senior vice president at Anadarko Petroleum, speaking to reporters in Washington.

Boosting the demand projection is a National Oceanic and Atmospheric Administration forecast for weather 13% colder than last winter, resulting in roughly normal heating load, the outlook said.

Overall, the outlook saw customer demand rising 8% to a record 96.8 Bcf/d, with residential and commercial demand up to 36.9 Bcf/d from 34.1 Bcf/d; electric sector demand up to 22.7 Bcf/d from 21.1 Bcf/d, along with a modest rise in industrial demand of 0.3 Bcf/d; and a 2.1 Bcf/d increase in exports. Pipeline exports would comprise 4.4 Bcf/d, up 0.4 Bcf/d, while net LNG exports would hit 2.8 Bcf/d, up 1.6 Bcf/d.

"Record demand in the residential and commercial sector is primarily driven by colder weather, with a longer-term shift to natural gas in the electric and industrial sectors driven by competitive prices and environmental benefits," Moore said in a statement.

The outlook predicted production would rise to 76.4 Bcf/d on average this winter from 70.7 Bcf/d last winter. Most of the increase would occur in the Appalachian region, aided by new pipeline capacity coming online. Moore added that about a quarter of the supply growth forecast is from gas associated with oil production, primarily found in the Permian basin in West Texas and aimed at exports to Mexico and LNG exports out of the Gulf Coast.

The outlook saw steady and positive economic activity, with GDP growth strengthening at 2.5%, but with gains still modest enough for a neutral impact to prices. The outlook also saw little impact from storage, which was 1% below the five-year average, with 3.85 Tcf projected for the start-of-winter inventory. That level might increase with a loss of demand from the effects of hurricanes Harvey and Irma.

Some 27.3 GW of baseload being added

In power generation, the outlook projected growing contributions from gas, with new baseload generation of 27.3 GW being added in 2017 and 2018, about one-third of that in Pennsylvania, Ohio and West Virginia. A smaller amount, 2.2 GW of peaking units, should come online in 2017 and 2018, about half in California and Arizona.

"The key theme here is that natural gas is adding reliability to the grid, either directly or as support for intermittency," Moore said.

On the industrial side, Moore described continued steady growth: "another brick in the road every year." The outlook identifies $135 billion of investment in new industrial facilities between 2016 and 2022, or 59 new projects, mostly in the petrochemical and fertilizer sector, with new additions peaking in 2017 and 2018.

Moore acknowledged weather as one major wild card, noting the potential for a demand swing of 2.6 Bcf/d on a particularly cold winter, or 2.8 Bcf/d on a warmer-than-expected season. In the Northeast, it is also possible to see temporary short-term price spikes due to a constrained pipeline system on peak days, he said, suggesting that consumers adequately should contract for the capacity they need.

Geographical diversification of supply has eased the market impact of major weather events such as hurricanes Harvey and Irma, which had little effect on prices, Moore said. "From my perspective as a producer, I wasn't worried about our ability to meet our markets," he said. "I worried about where is our product going to go because the market couldn't take it."