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In November's Short-Term Energy Outlook (STEO) the EIA expects Henry Hub spot natural gas prices to rise to a monthly average of $3.42/MMBtu in January 2021 because of rising domestic demand for natural gas for space heating, rising U.S. LNG exports, and reduced production.

 EIA STEO Nov 2020 Natural Gas

Highlights:

  • EIA expects Henry Hub spot prices to rise to a monthly average of $3.42/MMBtu in January 2021 because of rising domestic demand for natural gas for space heating, rising U.S. LNG exports, and reduced production.
  • EIA expects that monthly average spot prices will remain higher than $3.00/MMBtu throughout 2021, averaging $3.14/MMBtu for the year, up from a forecast average of $2.14/MMBtu in 2020.
  • EIA forecasts that inventory draws will outpace the five-year average during the heating season (October–March) and end March 2021 at 1.5 Tcf, which would be 16% lower than the 2016–20 average.
  • EIA expects total U.S. natural gas consumption will average 79.4 Bcf/d in 2021, a 5.2% decline from 2020. The expected decline in 2021 is the result of rising natural gas prices that will reduce demand for natural gas in the electric power sector.
  • EIA forecasts U.S. dry natural gas production will average 91.0 Bcf/d in 2020, down from an average of 93.1 Bcf/d in 2019. . The increase in crude oil prices is expected to raise associated gas production from oil-directed wells in late-2021, especially in the Permian region.
  • EIA estimates that the United States exported 7.2 Bcf/d of LNG in October, an increase of 2.3 Bcf/d from September—the largest month-on-month increase since U.S. LNG exports began in 2016 EIA forecasts that U.S.
  • LNG exports will be above pre-COVID levels in November 2020, averaging 8.5 Bcf/d, and will average 8.4 Bcf/d in 2021, a 31% increase from 2020.

Natural Gas Prices

In October, the Henry Hub natural gas spot price averaged $2.39 per million British thermal units (MMBtu), up from an average of $1.92/MMBtu in September. Higher natural gas spot prices reflected stronger demand for liquefied natural gas (LNG) exports as LNG terminals increased liquefaction following hurricane-related disruptions in August and September. EIA expects Henry Hub spot prices to rise to a monthly average of $3.42/MMBtu in January 2021 because of rising domestic demand for natural gas for space heating, rising U.S. LNG exports, and reduced production. EIA expects that monthly average spot prices will remain higher than $3.00/MMBtu throughout 2021, averaging $3.14/MMBtu for the year, up from a forecast average of $2.14/MMBtu in 2020. '

Storage

EIA estimates that total U.S. working natural gas in storage ended October at almost 4.0 trillion cubic feet (Tcf), 5% more than the five-year (2015–19) average and the secondhighest end-of-October level on record. However, because EIA forecasts less U.S. natural gas production this winter than last winter, EIA forecasts that inventory draws will outpace the five-year average during the heating season (October–March) and end March 2021 at 1.5 Tcf, which would be 16% lower than the 2016–20 average.

Consumption

EIA expects that total U.S. consumption of natural gas will average 83.7 billion cubic feet per day (Bcf/d) in 2020, down 1.7% from 2019. The decline in total U.S. consumption reflects less heating demand in early 2020, contributing to residential demand in 2020 averaging 13.2 Bcf/d (down 0.6 Bcf/d from 2019) and commercial demand in 2020 averaging 8.8 Bcf/d (down 0.9 Bcf/d from 2019). EIA forecasts industrial consumption will average 22.5 Bcf/d in 2020, down 0.6 Bcf/d from 2019 as a result of reduced manufacturing activity. EIA expects total U.S. natural gas consumption will average 79.4 Bcf/d in 2021, a 5.2% decline from 2020. The expected decline in 2021 is the result of rising natural gas prices that will reduce demand for natural gas in the electric power sector.

Production

EIA forecasts U.S. dry natural gas production will average 91.0 Bcf/d in 2020, down from an average of 93.1 Bcf/d in 2019. In the forecast, monthly average production falls from a record 97.0 Bcf/d in December 2019 to 87.0 Bcf/d in April 2021 before increasing slightly. EIA forecasts dry natural gas production in the United States to average 87.9 Bcf/d in 2021. EIA expects production to begin rising in the second quarter of 2021 in response to higher natural gas and crude oil prices. The increase in crude oil prices is expected to raise associated gas production from oil-directed wells in late-2021, especially in the Permian region.

LNG Exports

EIA estimates that the United States exported 7.2 Bcf/d of LNG in October, an increase of 2.3 Bcf/d from September—the largest month-on-month increase since U.S. LNG exports began in 2016. Cameron LNG resumed LNG exports in October after being shut down following Hurricane Laura and Hurricane Delta. Cove Point LNG completed its scheduled three-week annual maintenance and resumed LNG exports in mid-October. Higher global forward prices for LNG indicate improving netbacks for buyers of U.S. LNG in European and Asian markets for the upcoming winter season. The increased prices come amid expectations of natural gas demand recovery in those markets and potential LNG supply reductions because of outages at several LNG export facilities in the Pacific Basin and Atlantic Basin. EIA forecasts that U.S. LNG exports will be above pre-COVID levels in November 2020, averaging 8.5 Bcf/d, and will average 8.4 Bcf/d in 2021, a 31% increase from 2020.

Source EIA STEO

From the TradersCommunity Research Desk

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