The US Energy Information Administration May 11 lowered its forecasts for natural gas production for the remainder of 2021, even as it expected growing LNG exports and domestic consumption would help push Henry Hub spot prices higher.
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In its May Short-Term Energy Outlook and an accompanying report on the summer electricity sector, the agency also cast higher natural gas prices as dampening use of the fuel in the power sector.
EIA lowered by 810 MMcf/d to 97.51 Bcf/d its natural gas marketed production estimate for the US in the second quarter and trimmed the Q3 production forecast by 990 MMcf/d to 98.13 Bcf/d.
Dry gas production was expected to be relatively flat in May, ahead of a rise starting in mid-2021, reflecting sustained higher forecast prices for natural gas and crude oil, compared with 2020, the report said.
"We expect growth in liquefied natural gas exports and domestic natural gas consumption to outpace growth in domestic production, leading Henry Hub spot prices to average $3.05/MMBtu in 2021, a 50% increase from 2020," said EIA Acting Administrator Steve Nalley.
EIA raised its forecast for Q2 Henry Hub natural gas spot prices 5 cents to $2.78/MMBtu. The Q3 forecast also rose 1 cent from the previous month's estimates to $2.90/MMBtu. The agency projected Henry Hub prices would average $3.02/MMBtu in 2022, compared with the previous month's estimate of $3.11/MMBtu.
Low power-sector use ahead
EIA said higher gas prices were expected to lower the use of gas-fired generation this summer, particularly in Texas and the Midwest.
Nalley said EIA expects renewable sources will provide 28% of Texas's electricity demand this summer, up from 21% in 2020, meaning renewables are likely to be the primary replacement for high-cost natural gas in Texas.
In the Central region, EIA expected renewables would account for 36% of total summer 2021 generation, up from 31% the prior summer. Non-hydro renewables were forecast to generate more power this summer across all regions, mostly because of new capacity installed over the past year.
Overall, EIA expected gas-fired generation to be dispatched less often this summer, while coal plants are dispatched more frequently.
"We forecast US electric power sector generation from natural gas during the summer of 2021 will total 420 billion kWh, accounting for 37% of total generation and down from 42% last summer," the summer outlook said.
EIA forecast coal's share to rise to 26% in summer 2021 from 22% in 2020.
Coming off all-time record US LNG exports of 10.5 Bcf/d in March, followed by 9.2 Bdf/d exported in April, EIA forecast that those levels would decline in May to 8.6 Bcf/d before rising above 9 Bcf/d in the summer.
"We expect LNG exports will average 9.2 Bcf/d in both 2021 and 2022," EIA said, adding flat 2022 levels reflect limited new export capacity expected to come online.
Elsewhere, the agency lowered its gas consumption estimates 1.25 Bcf/d to 70.53 Bcf/d for Q2, but its Q3 estimate rose slightly, by 80 MMcf/d to 73.69 Bcf/d. Total US gas consumption is forecast to average 82.64 Bcf/d in 2021 and 82.53 Bcf/d in 2022, down from 83.25 Bcf/d in 2020.
By contrast, US electricity consumption is expected to rise 2.2% in 2021, primarily on improved economic conditions.
"We forecast 1.5% more electricity consumption this summer than last summer in the United States as economic recovery spurs commercial and industrial activity and, as a result, energy consumption," Nalley said.
According to the summer outlook, higher expected fuel costs are also likely to lead to increases in wholesale and retail power prices this summer.
"Forecast summer peak-hour wholesale prices range from an average of $21/MWh for the ERCOT North price hub in Texas to an average of $45/MWh in California's [Independent System Operator] SP-15 zone," EIA said.
That follows a summer 2020 marked by a sharp drop in US commercial and industrial sector consumption, while residential sales hit records amid warm weather and an increase in residential energy use with more people working from home.
The National Oceanic and Atmospheric Administration forecast that US cooling degree days between June and August will be 5.9% below last summer, EIA noted.