Washington — The US Energy Information Administration raised its natural gas production estimates for the remainder of 2018 and continued to predict new production records for the year, as drilling efficiencies combine with higher output associated with oil production.
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Natural gas consumption was also expected to be higher for 2018 than 2017, driven by power sector use, according to the agency's July short-term energy outlook released Tuesday.
"The July outlook continues to forecast record production for US dry natural gas in 2018 and 2019," said EIA Administrator Linda Capuano. "Assuming the forecast holds, we will see production top 81 Bcf/d in 2018, and another increase that will push production up" to roughly 84 Bcf/d next year.
The agency Tuesday raised by 0.71 Bcf/d to 89.83 Bcf/d its natural gas marketed production estimate for the US in the fourth quarter. It also raised its Q3 production forecast by 0.55 Bcf/d to 88.77 Bcf/d.
"The expected growth in natural gas production is largely in response to improved drilling efficiency and cost reductions, as well as higher crude oil prices that contribute to higher associated gas production from oil-directed rigs," the report said. NEW PIPELINES EASE IMPORTS FROM CANADA
Capuano noted that growth in production enables EIA's forecast of LNG and pipeline exports from the US to expand, while natural gas pipeline imports from Canada continue to decline.
"New infrastructure and increased exports from the Appalachia basin to the US Midwest and Canada are behind much of the decrease," Capuano said. The decrease was expected to continue as the Rover and Nexus pipelines add to deliveries of Appalachian basin gas to the Midwest and Eastern Canada.
Turning to prices, EIA said that "higher natural gas production during the injection season will offset current and forecast low storage levels and will moderate significant upward price pressures in 2018." It lowered its forecast for Q3 Henry Hub natural gas spot prices by 2 cents to $2.99/MMBtu. The 2018 forecast stayed flat at 2.99/MMBtu, but the 2019 forecast dropped 4 cents from the previous month's estimate to $3.04/MMBtu. As to storage, the agency estimated that natural gas inventories are likely to increase at the five-year average rate of growth during the current injection season to reach 3.5 Tcf on October 31. That level would be 9% lower than the five-year average for the end of October.
HIGHER POWER SECTOR USE DRIVES UP GAS CONSUMPTION
On the demand side, the agency lowered its natural gas consumption estimates by 860 MMcf/d to 81.06 Bcf/d for Q4 2018, but raised by 360 MMcf/d to 69.9 Bcf/d its estimate for the third quarter.
But overall, the outlook estimated natural gas consumption would rise by 7% from 2017 levels to 79.7 Bcf/d in 2018 before dropping slightly to 79.6 Bcf/d in 2019.
"In 2018, increases in total natural gas consumption are mainly attributable to higher electric power sector use, which is forecast to increase by 2.4 Bcf/d (10%) from 2017 levels," the outlook said. Also contributing was colder weather in Q1 that pushed up residential and commercial demand.
In 2018, EIA expects residential and commercial natural gas consumption to increase by 10% and by 4%, respectively, compared with 2017 levels, but declines of 2% and 4% respectively are expected in 2019, based on more typical temperature forecasts for next winter.
The outlook predicts that natural gas will continue to account for a greater share of the generation mix than coal as a result of sustained low prices for natural gas.
"The natural gas-fired share of generation is forecast to rise to 34% in 2018 and to 35% in 2019. In contrast, the forecast share of generation from coal-fired power plants falls to 28% this year and to 27% in 2019," EIA said.
US coal use in the power sector was down 4% in the first half of 2018, compared with the same period last year, and declines were expected to continue with another 4% drop in the first half of 2019, the forecast said.
On the other hand, the share of total generation for non-hydro renewables, which was 9.6% in 2017, was estimated to grow to 10.1% in 2018 and 10.8% in 2019.
"In 2017, electricity generation from renewables was just above 17% of total electricity generation," Capuano said. "The July outlook expects increases in generation among renewables to come from sources other than hydropower over the next couple of years." --Maya Weber, firstname.lastname@example.org
--Edited by Rocco Canonica, email@example.com