Price declines brought on by mild June temperatures and an updated assessment of US drilling activity and average well productivity spurred the US Energy Information Administration Tuesday to lower its forecast for Henry Hub natural gas spot prices in the second half of 2019.
The agency, in its July Short-Term Energy Outlook, put third-quarter Henry Hub natural gas spot prices at $2.35/MMBtu, down 30 cents from its June estimate. The Q4 forecast dipped 29 cents from the prior month to $2.65/MMBtu.
The Henry Hub forecasts were "down quite a bit from" the agency's prior-month estimates, EIA Administrator Linda Capuano noted in a statement Tuesday. "EIA lowered the forecast after mild June temperatures reduced gas power burn, contributing to several weeks of plus-100 Bcf storage injections," she said. "EIA is also seeing continuing efficiencies in drilling technology that reduce the cost of natural gas production and contribute to a lower price environment."
The agency said monthly average prices were expected to remain below $2.40/MMBtu through September, dragging the full-year 2019 average spot price down 15 cents from the prior month's estimate to $2.62/MMBtu.
SUPPLY GROWTH TO MODERATE
"As supply growth begins to moderate in late-2019 and in 2020, it will put some upward pressure on prices," EIA said, but it noted that its forecast was temperature-dependent. A hotter-than-expected rest of the summer could push prices up, EIA said.
EIA's forecast price for 2020 remained unchanged from June at $2.77/MMBtu, as it expects Henry Hub prices to reach an average of $3.05/MMBtu in January. But a severely cold winter could see price spikes well above that estimate, while a mild winter could keep prices under $3/MMBtu, EIA said.
As for supply, gas production growth is expected "to decelerate in the coming months" after several recent months of output consistently hitting new record highs. Lower forecast prices are seen as a major contributor to this slowdown.
EIA's estimate for dry natural gas production in the first half of 2019 is 89.9 Bcf/d, a 12.2% increase over the same period a year ago. It puts output for the second half of the year at 92.7 Bcf/d, a 7.1% increase over the same year-ago period.
"Slowing demand growth from 2018 levels has reduced the need for natural gas production to grow at the pace experienced during the past year, contributing to a lower market-clearing price," EIA said.
"However, even though growth is expected to slow, EIA expects growth in natural gas production through the remainder of 2019, largely in response to improved drilling efficiency, year-over-year cost reductions, and higher associated gas production from oil-directed rigs," the agency said in its outlook.
Thus, EIA raised its Q3 natural gas marketed production estimate by 1.13 Bcf/d to 99.35 Bcf/d, and boosted its Q4 forecast by 1.45 Bcf/d to 100.54 Bcf/d.
EIA also lifted its 2020 marketed production estimate by 1.09 Bcf/d to 100.16 Bcf/d, but it "expects flat production in 2020, with annual growth forecast at 1.6%."
DEMAND SEEN SLIPPING IN 2020
The agency's demand forecast for full-year 2019 went up 0.42 Bcf/d from the prior month to 84.59 Bcf/d. While EIA also raised its 2020 estimate by 0.16 Bcf/d to 84.54 Bcf/d, the average forecast demand for that year would see a slight dip from 2019.
The dip reflects an expected 0.8% decline in gas consumption by the power sector, the largest gas-consuming sector in the US, in 2020 as gas prices are expected to rise, EIA said.
Meanwhile, gas demand from the power sector in 2019 is forecast to increase 3.8% from 2018 due to "favorable natural gas prices and coal-to-gas switching," EIA said.
The agency raised its natural gas consumption estimates by 1.15 Bcf/d to 76.06 Bcf/d for Q3, and by 0.94 Bcf/d to 88.16 Bcf/d for Q4.
Utility-scale generation from gas-fired plants is expected to account for 38% of the resource mix in 2019, up from 35% in 2018. Also on the rise is generation from wind, solar and non-hydropower renewables, which will go from 10% of the 2019 mix to 11% in 2019 and 13% in 2020.
As gas and renewables gain market share, coal-fired generation will continue its demise, falling from 27% of the resource mix in 2018 to 24% in 2019 and 23% in 2020.
