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US EIA sees higher spot gas prices in 2020 ahead amid production retreats

Highlights

Q3 Henry Hub spot forecast raised 26 cents to $1.91/MMBtu

Q3 gas marketed production forecast lifted 1.08 Bcf/d

Gas share of generation mix seen declining to 35% in 2020

Washington — The US Energy Information Administration on Aug. 11 nudged up its forecasts for Henry Hub spot natural gas prices for the third and fourth quarters of 2020, even as it lowered estimates for natural gas production over the same period.

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The agency, in its August Short-Term Energy Outlook, raised its forecast for Q3 Henry Hub natural gas spot prices by 26 cents to $1.91/MMBtu, and increased its Q4 estimate by 15 cents to $2.61/MMBtu.

"EIA expects sharp increases in US natural gas prices this fall and winter, rising from an average $2.11/MMBtu in September to $3.12/MMBtu in January," said EIA Administrator Linda Capuano, in a statement released alongside the report. Henry Hub prices are forecast to average $2.03/MMBtu in 2020 and $3.14/MMBtu in 2021, up 10 cents and 4 cents respectively from the July forecast.

Production declines

Conversely, EIA is expecting weaker production after low oil and gas prices caused producers to cut back on drilling.

EIA lowered its Q3 production forecast by 1.08 Bcf/d to 93.07 Bcf/d, and trimmed Q4 estimates by 690 MMcf/d to 91.47 Bcf/d. After reaching a record 99.17 Bcf/d average in 2019, yearly averages are seen easing to 95.64 Bcf/d in 2020 and then declining further to 90.83 Bcf/d in 2021.

The agency lowered its natural gas consumption estimates by 170 MMcf/d to 74.85 Bcf/d for Q3, but raised its estimate for Q4 by 270 MMcf/d to 84.51 Bcf/d. The largest decline is expected in industrial sector demand, amid a slowdown in manufacturing and heating demand.

For the LNG sector, the outlook highlighted steeper-than-expected declines in LNG exports this summer, noting estimates that about 46 cargoes were canceled in June and about 50 in July.

EIA expects those exports will decline through the end of the summer as a result of reduced global demand and will remain low in the coming months. "US exports of LNG in July 2020 averaged 3.1 Bcf/d, which is about the same as in May 2018, when the available liquefaction capacity was about one-third of the current capacity," the report said.

Generating fuels

Consumption of gas in the electric sector hit its highest monthly average on record in July, Capuano noted, but it is expected to decline 3% from 2019 to 2020 on softer industrial demand. Gas-fired generation is seen rising to 40% of the generating fuel mix in 2020, before dropping to 35% in 2021 in response to higher gas prices.

Coal and renewable generation stand to gain. After dropping to 18% of the generation mix in 2020, coal's share is forecast to rise to 22% in 2021.

Renewables, the fastest-growing source of generation, are seen rising from 20% in 2020 to 22% in 2021.

In one notable change, EIA raised the amount of power sector photovoltaic capacity expected to come online through 2021 to 12.2 GW, up from 11.4 GW in the previous month's outlook.

"EIA expects US electricity consumption will be 3.6% lower in 2020, with the commercial sector accounting for the largest decline on a percentage basis. Consumption is expected to rise 0.8% in 2021," Capuano said.