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EIA lowers H2 2019 Henry Hub price forecast, releases regional power data

Washington — Citing late-July natural gas price decreases and expectations of production growth, the US Energy Information Administration on Tuesday lowered its Henry Hub spot price forecasts for the second half of 2019.

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The US Energy Information Administration, in its August Short-Term Energy Outlook, trimmed the forecast for Q3 Henry Hub natural gas spot prices by 6 cents to $2.29/MMBtu. The Q4 forecast also fell 22 cents from the previous month's estimates to $2.43/MMBtu.

The forecast adjustments come as EIA separately sought to increase visibility into wholesale electricity prices with the release of new regional price forecasts and analyses. Those added insights prompted EIA to scale back some forecasts for renewable power generation.

GAS PRICE DECLINES

Addressing the trimmed natural gas price forecasts, EIA noted that robust dry gas production growth has exceeded the agency's July forecast.

The agency projected Henry Hub natural gas prices would average $2.55/MMBtu for full-year 2019 and $2.75/MMBtu in 2020, down from the previous month's estimates of $2.62/MMBtu and $2.77/MMBtu, respectively.

"Despite the near-term reductions in prices, EIA expects natural gas prices to recover somewhat in 2020 because gas production models indicate that rising prices are required in the coming quarters to bring supply into balance with rising domestic and export demand in 2020," EIA Administrator Linda Capuano said.

Total natural gas marketed production estimates were scaled back, however. EIA lowered the US production estimate for Q3 by 0.69 Bcf/d to 98.66 Bcf/d, and for Q4 by 0.21 Bcf/d to 100.33 Bcf/d.

CONSUMPTION RAISED

As for natural gas consumption, the agency raised estimates by 0.49 Bcf/d to 76.55 Bcf/d for Q3, and by 0.91 Bcf/d to 89.07 Bcf/d for Q4.

"EIA estimates that the US power sector set a record for natural gas consumption in response to the mid-July heat wave. Despite the record consumption, inventories ended the month 4% below the five-year [average], compared with 19% below the five-year average a year earlier, because of record natural gas production," Capuano said.

Natural gas inventories were expected to rise to more than 3.7 Tcf at the end of October, 16% higher than October 2018 levels and just above the five-year average.

ELECTRICITY FORECAST

In its electricity forecast, EIA said lower costs for natural gas are driving its expectation that annual average wholesale prices will be lower in 2019 across the US.

Highlighting the new regional forecasts, Capuano said from 2018 to 2019, "prices in Texas are forecast to decrease by 28%, compared to a 0.2% decline in the Southwest."

The new regional-level trend analysis adds a generator-level production cost model that simulates hourly generation at individual power plants, improving insights into generation, particularly from fast-growing renewable resources, Capuano said.

"After a windy first half of 2018, the additional granularity and the assumption that wind will return to more normal levels in 2019 results in a forecast that electricity generation from wind power will be 4% lower in 2019 and 7% lower in 2020 than EIA's prior [STEO] forecast in July," she said.

In addition, greater consideration of hourly dispatch allowed EIA to lower the solar power production forecast by 1.1% in 2019 and by 2.8% in 2020, according to the outlook.

Gas-fired power plants were expected to make up 37% of utility-scale generation in 2019 and then "decline slightly" in 2020, while coal was seen averaging 24% in 2019 and 2020.

-- Maya Weber, maya.weber@spglobal.com

-- Edited by Richard Rubin, newsdesk@spglobal.com