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US natural gas production gains may help keep prices in check: EIA

Highlights

With ample natural gas supplies continuing to come from the Marcellus and Utica shale plays, significant gains in production are expected between 2017 and 2018, offering some price pressure at a time when other factors are poised to push prices up, the US Energy Information Administration said Tuesday in its monthly outlook.

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US gas production is forecast to rise in both 2017 and 2018 after declining during 2016, the first annual decline since 2005.

EIA, in its December Short-Term Energy Outlook, put 2017 US natural gas marketed production at an average 78.82 Bcf/d, a 60 MMcf/d upward revision from its prior estimate, reflecting a 1.3% rise over 2016 output levels. Production for full-year 2018 is forecast to average 85.53 Bcf/d, up 730 MMcf/d from the prior estimate, and would be an 8.5% rise over 2017 output.

EIA raised by 410 MMcf/d to 82.28 Bcf/d its gas marketed production estimate for fourth-quarter 2017. The December outlook also raised its Q1 2018 production forecast by 260 MMcf/d to 84.07 Bcf/d.

"Increased takeaway capacity from Appalachia is expected to result in increased natural gas production in the coming months and could limit significant upward price pressure, although colder-than-normal temperatures throughout the rest of 2017 could contribute to price increases," the agency said in its outlook.

EIA raised its Q4 Henry Hub natural gas spot price forecast 2 cents to $3.01/MMBtu, and projected prices would also average $3.01/MMBtu for full-year 2017. Growth in gas exports and domestic gas consumption are seen pushing up prices in 2018 to average $3.12/MMBtu, EIA said. Its Q1 price forecast also rose 2 cents from the previous month to $3.26/MMBtu.

Although prices are headed up, price volatility is expected to be milder than past years, EIA said.

"After reaching a three-year low in August 2017, volatility has been steadily increasing, as is typical heading into winter, but it remains below the volatility levels seen in November 2015 and 2016," the agency said. For instance, gas futures prices traded within a 31-cent range in October, the narrowest range for that month since 1995, EIA said in the outlook.

Further, "natural gas production has shown year-on-year growth since June 2017, and inventories are within 1% of the five-year-average level, which may moderate implied volatility," EIA added.

As for growing gas demand that is pushing prices up, EIA expects new gas export capabilities to raise gross LNG exports to 3.03 Bcf/d in 2018 from 1.94 Bcf/d in 2017. Gross pipeline exports also are on the rise, reaching 6.75 Bcf/d in 2017, then hitting 7.31 Bcf/d in 2018, EIA said.

Domestic gas demand is expected to slip to an average 73.71 Bcf/d in 2017 from 75.10 Bcf/d for full-year 2016 as power sector consumption declines, then rebound in 2018 to an average 76.85 Bcf/d, according to EIA's outlook.

The agency lowered its gas consumption estimates 90 MMcf/d to 77.78 Bcf/d for Q4, and by 180 MMcf/d to 93.45 Bcf/d for Q1.

The agency's outlook projected power generation from gas to fall to 32% of total US utility-scale generation in both 2017 and 2018 from an average of 34% in 2016 due to higher gas fuel costs and increased generation from renewable energy sources.

Coal's share of the generation mix is expected to be unchanged at 30% in 2017 and see a slight uptick to 31% in 2018.

"Renewables, not including hydroelectric generation, should gain two percentage points in their share of utility-scale generation from about 8% in 2016 to 10% in 2018," EIA Acting Administrator John Conti said in a statement Tuesday. "A significant part of that projected increase is tied to the forecast growth in wind generating capacity during 2018."

Specifically, wind generating capacity is expected to reach 88 GW by the end of 2017 and rise to 96 GW by the end of 2018. Utility-scale solar capacity is forecast at 27 GW by the end of 2017 and 30 GW by the end of 2018, EIA said.

--Jasmin Melvin, jasmin.melvin@spglobal.com

--Edited by Valarie Jackson, valarie.jackson@spglobal.com