EIA Expects Natural Gas Prices to Decline after January as Inventories Rebalance

In the November STEO, EIA estimate U.S. natural gas inventories ended October 2022 at more than 3.5 trillion cubic feet (Tcf). This is 4% below the five-year average and higher than what they had been forecasting. Storage falls in the EIA forecast by 2.1 Tcf this winter to 1.4 Tcf by the end of March 2023, 8% below the five-year average. Their Henry Hub spot price forecast was lowered to $6 MMBtu across 4Q22 and 1Q23, which is more than $1/MMBtu lower than the forecast in the October STEO. They expect natural gas prices to decline after January as the deficit to the five-year average in inventories decreases.

STEO Natural Gas Highlights

  • EIA forecast at the end of October, typically considered the end of storage injection season (March–October), working natural gas in storage was 3,544 billion cubic feet (Bcf), 4% below the five-year (2017–2021) average.
  • Higher-than-average injections of natural gas into storage in September and October reduced the deficit of natural gas inventories to the five-year average and contributed to falling natural gas prices.
  • The natural gas spot price at Henry Hub averaged $8.80 per million British thermal units (MMBtu) in August but declined to an average of $5.66/MMBtu in October.
  • EIA expect natural gas inventories to fall by 2,110 Bcf this winter, which is similar to the five-year average winter withdrawal.
  • EIA forecast that natural gas inventories will total 1,433 Bcf at the end of March, which is 8% below the five-year average. However, actual inventory outcomes will highly depend on realized temperatures throughout the winter.
  • Natural gas production has increased steadily throughout 2022, and dry natural gas production averages 100.4 billion cubic feet per day (Bcf/d) in the EIA forecast for November.
  • EIA expect that lower prices and some constraints in the pipeline capacity to move natural gas from production fields to consuming markets will reduce drilling activity, and forecast natural gas production will average 99.7 Bcf/d in 2023, 2% more than in 2022, but down from current monthly average production.
  • EIA expect the benchmark Henry Hub natural gas spot price to average nearly $5.50/MMBtu in November 2022, before rising to more than $6/MMBtu in December and 1Q23. Natural gas prices typically increase in winter months as colder weather increases demand for natural gas for space-heating.
  • Expect downward pressures on natural gas prices will emerge in 2Q23. In 2023, the combination of natural gas consumption and exports in the forecast falls by more than 1 Bcf/d on average compared with 2022, while combined production and imports rise by a similar amount, leading to strong injections during the 2023 refill season.

Uncertainty in macroeconomic conditions could significantly affect energy markets in the forecast period. Based on the S&P Global macroeconomic model, EIA now expect U.S. GDP will fall slightly in 2023, which we forecast will contribute to a drop in total U.S. energy consumption next year.

Source: EIA

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