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Warm temperatures, ample gas expected to ease US winter heating costs, EIA says

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Warm temperatures, ample gas expected to ease US winter heating costs, EIA says

A warmer winter forecast for most of the U.S., as well as healthy natural gas storage inventories that have been replenished by the country's strong gas production, will help slightly lower heating expenditures this winter compared with last winter, the U.S. Energy Information Administration said in its 2019-2020 winter fuels outlook.

Overall, the agency forecast a 1% decline in gas and electricity bills on average, even with expectations that higher retail gas prices would increase expenses for homes that heat with gas in the Midwest and the South. Residential gas prices are forecast to see a 3% rise amid a 4% decline in residential gas consumption on warmer weather.

"The main takeaway here is that milder forecast weather leads to lower forecast expenditures across the board," said Tim Hess, product manager for the EIA's "Short-Term Energy Outlook." He pointed to assumptions that there will be 4% fewer heating degree days this winter than last. The EIA defined winter as October through March.

"But for customers who heat with gas or electricity, those declines are expected to be quite modest as the temperature effects of lower consumption are offset by slightly higher residential prices," Hess said.

Residential gas prices in the Midwest are forecast to be nearly 8% higher this winter than last, and prices in the South and West are expected to be about 5% and 3% higher, respectively. Northeast prices are forecast to decline 6%, helped by relatively low global prices for LNG and lower household gas consumption.

The overall slight decline in heating expenses is aided by generally declining commodity prices, the EIA said. For the winter, the EIA expected gas prices at Henry Hub will average $2.56/MMBtu, down 24% from last winter. According to the agency, record growth in U.S. gas production put downward pressure on spot gas prices in 2019, despite high levels of exports and increased power sector consumption.

"In general, EIA expects Henry Hub spot prices to remain lower than last winter as production has grown steadily through 2019, leading to a strong storage injection season and leaving supplies ample heading into winter," said Hess. "However, as you can see in recent winters … there have been spikes during periods of cold that have caused Henry Hub prices to rise for periods of several days, and these have affected monthly average prices."

The EIA raised its fourth-quarter 2019 production forecast by 0.59 Bcf/d to 101.36 Bcf/d and its first-quarter 2020 production forecast by 0.26 Bcf/d to 100.49 Bcf/d.

"Although the United States remains on track to set new records for dry natural gas production in 2019 and 2020, EIA believes that low natural gas prices will cause production to start to level off going into 2020," EIA Administrator Linda Capuano said. The October outlook had production increasing in 2019 by about 10%, exceeding 91 Bcf/d, year on year, while 2020 would experience a smaller increase to more than 93 Bcf/d.

The agency lowered its gas consumption estimates by 0.28 Bcf/d to 89 Bcf/d for the fourth quarter and by 0.52 Bcf/d to 101.82 Bcf/d for the first quarter of 2020.

Capuano emphasized that natural gas storage has seen a significant rebound, after starting the injection season almost 30% below the prior five-year average. By the end of October, working storage inventories should be 3.792 Tcf, 2% above the prior five-year average and 17% above October 2018 levels, the EIA said.

The EIA lowered its forecast for fourth-quarter Henry Hub gas spot prices by 1 cent to $2.43/MMBtu. The first-quarter 2020 forecast was unchanged at $2.70/MMBtu. For full-year 2019, Henry Hub prices are expected to average $2.57/MMBtu, then $2.52/MMBtu in 2020, down from the previous month's estimates of $2.62/MMBtu and $2.77/MMBtu, respectively.

In assessing the winter outlook, EIA officials emphasized that weather can be unpredictable. Under a scenario that is 10% colder than the expected forecast, residential gas consumption could be 4% higher than last winter and gas prices could be 2% higher, pushing household expenditures up 7%.

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.