Washington — The Natural Gas Supply Association's 2020-2021 winter outlook predicts that a combination of colder weather and decreased production will place upward pressure on natural gas prices, compared with last winter's low average price of $2.08/MMBtu, despite a slower domestic economy and slightly lower demand
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The trade group's outlook is based on five factors: economy, weather, overall demand, supply and storage. It draws on data from Energy Ventures Analysis and the US Energy Information Administration for demand and supply projections, and IHS Market for economic projections.
According to the outlook, supply this winter is estimated to average just over 109 Bcf/d, with production at 86 Bcf/d, 9% lower than last winter because of declines in gas production associated with oil drilling.
Slight drop in demand
Overall demand is seen reaching 109.7 Bcf/d, when export customers are included, down less than 1% from the prior winter levels.
There are greater uncertainties in this year's outlook than in the prior year's, amid the coronavirus pandemic, according to Orlando Alvarez, chairman of NGSA and head of BP America's North American gas marketing and trading business.
"Another wave of COVID could definitely impact the market, from global demand to the LNG exports," he said, while a faster recovery would also sway the outcome
Exports are seen reaching record highs, even as domestic production and domestic demand are lowered primarily due to economic impacts of COVID-19.
Domestic demand is estimated to average 88.2 Bcf/d this winter, down from 89.7 Bcf/d in winter 2019-20. Expected growth in residential-commercial and industrial sector gas use is seen as insufficient to offset a decrease in power burn.
The outlook predicted a slight decrease in electric sector demand growth, driven mostly by lower power burn. Power burn is seen at 26.6 Bcf/d, down from 28.9 Bcf/d the prior winter, amid a decrease in economic dispatch of gas-fired versus coal-fired generation as gas prices rise. About 3-4 Bcf is subject coal-to-gas switching, down from previous levels of 6 Bcf/d or higher, due to coal retirements, Alvarez noted.
Nonetheless, the structural shift from coal to gas-fired generation has continued. "We've seen over 7,500 MW of gas-fired generation being built just in the last year," Alvarez said.
The outlook sees economic uncertainty keeping industrial demand growth to just 0.1 Bcf/d winter over winter, while a 4% colder winter forecast is seen pushing up residential/commercial demand by 0.7 Bcf/d. Alvarez suggested the slight uptick in industrial sector demand is primarily due to industrial plants using more space heating in colder weather and some expansions in natural gas intensive industries.
The outlook also counted weaker economic indicators than last winter, such as -2.6% GDP growth, among factors easing pressure on prices.
In one bright spot for the gas sector, exports are seen rising 9%, with LNG exports estimated to average 9.3 Bcf/d, up from 8.5 Bcf/d the prior winter. Pipeline exports are also seen up 0.4 Bcf/d to 5.5 Bcf/d.
"We are projecting that LNG [exports] on average for the winter will be up in Q4 at 8.7 Bcf/d and in Q1 at 9.4 Bcf/d," Alvarez said, as price differentials between the US and importing markets incentivize trade.
Declines in associated production
On the supply side, production in the Lower 48 for the winter is seen at 86 Bcf/d, down from 94.2 Bcf/d a year earlier, reflecting declines mostly in associated gas production, while dry gas production remains robust. New pipeline capacity also is seen bringing long-awaited relief to the Permian Basin.
Storage is also strong, with inventories of 4 Tcf at the start of winter, 9% higher than the five-year average, but also mitigated by a higher draw.
"As we enter the winter, we are projecting a 60% greater withdrawal from storage than we've seen over the five-year average," reflecting the lower levels of supply, Alvarez said. The average withdrawal is expected to be 18.3 Bcf/d compared with 11.6 Bcf/d last winter, he added.