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US EIA forecasts flagging gas consumption in 2020, slowing production in 2021

The U.S. Energy Information Administration expects softening demand for natural gas in 2020 from power, residential and commercial customers, ahead of an expected slowdown in gas production in 2021.

Specifically, the EIA forecast that residential and commercial gas demand will decline 1% in 2020 from prior-year levels to average 23.2 Bcf/d amid lower forecasts for heating demand, according to the administration's latest "Short-Term Energy Outlook" report, released Jan. 14. The agency projected further declines of 0.9% in 2021, also on milder forecasts.

The EIA also said that competing renewables and higher gas prices relative to coal are expected to drive gas consumption in the power sector down 3.2% in 2021, after witnessing slower growth in 2020. Electric generation consumed an average 31 Bcf/d in 2019, which was up 7% from 2018 because of new gas-fired generation capacity and competitive gas prices.

Industrial consumption is slated to get a boost from new chemical projects in 2020, when it is forecast to rise 4.6%, before flattening in 2021, the EIA said.

The agency outlook expects that total marketed gas production will slow in 2021 to an average 101.6 Bcf/d, down from the 102.06 Bcf/d forecast in 2020.

EIA Administrator Linda Capuano said the 2021 production decline comes as relatively low prices contribute to a reduction in gas-directed drilling. But building on record production in 2019, the EIA expects a 3% increase in dry gas production growth in 2020.

"Most of the growth will come from associated gas in the Permian region," Capuano said.

In the nearer term, the EIA's gas marketed production estimates for the first quarter rose 0.11 Bcf/d from the December 2019 estimate to 102.31 Bcf/d, while the EIA pared those back 0.20 Bcf/d for the second quarter. The agency raised its gas consumption estimates 0.51 Bcf/d to 105.05 Bcf/d for the first quarter, but kept its second-quarter demand forecast roughly flat, lowering it only 0.01 Bcf/d to 74.7 Bcf/d.

The EIA lowered by 35 cents to $2.27/MMBtu its first-quarter 2020 forecast for Henry Hub spot natural gas prices and lowered its second-quarter Henry Hub forecast 4 cents to $2.30/MMBtu. It forecast prices to average $2.33/MMBtu in 2020, down 12 cents from the prior month's estimate, and $2.54/MMBtu in 2021.

Production increases in 2020 are supported by planned expansions in LNG and increased pipeline exports to Mexico, the EIA said. Net gas exports are seen rising to an average of 7.3 Bcf/d in 2020 and 8.9 Bcf/d in 2021, with LNG exports accounting for 6.5 Bcf/d in 2020 and 7.7 Bcf/d in 2021. The estimates are based on assumptions that Cameron, Freeport, and Elba Island LNG terminals place remaining trains in service by the end of 2020.