Natural Gas U.S. Supply & Demand Outlook

Goals

To understand the actual fundamentals of the U.S. natural gas market, including supply, demand, prices and market outlook or forecasts.

Early Findings

Price

  • Natural gas prices in the U.S. have been falling since April 2019 after a slow increase during the previous months.
  • The main reference for Natural Gas pricing in the U.S., the Henry Hub, has averaged $2.37/million British thermal units (MMBtu) last month, a fall of 3 cents compared to June.
  • It fared even worse by the end of July, falling below$2.30/MMBtu.
  • According to EIA forecasts, production will remain strong in 2019, and the government agency predicts that the price for the second half of 2019 will average $2.36/MMBtu.
  • In its July short-term report, the EIA expected prices to average $2.50/MMBtu during the same period.
  • For 2020, EIA predicts an average price of $2.75/MMBtu.
  • According to the model used by the EIA, prices will have to rise to encourage supply and avoid an imbalance with growing domestic demand and rising export volume requirements.
  • In Mid-July, Jefferies reduced their natural gas price forecast for 2019 from $2.88 to $2.70 and their longer-term forecast from $3 to $2.75.
  • According to Jefferies, a price of $3 would encourage companies to drill and raise production.
  • According to Tudor, Pickering, Holt & Co. analysts, natural gas prices in the U.S. will remain below $2.50 per MMBtu as long as U.S. oil prices remain above $50 a barrel. The latter has increased by 27% in 2019.
  • Most analysts have a bearish view of gas prices, and a survey targeting oil and gas executives reported a prediction of an end-of-year price of $2.67/MMbtu, or 10% less than predictions made in early 2019.

Supply

  • The Energy Information Administration (EIA) is forecasting an increase in dry natural gas production in 2019 compared to 2018, with an average of 91 billion cubic feet (Bcf) per day, a growth of 7.8 Bcf/day compared to 2018.
  • The EIA expects to see average monthly domestic supply growth in late 2019 followed by a slight fall during Q1 2020, caused by a lagged effect of low prices during Q2 2019 reducing drilling for natural gas in the U.S.
  • Growth in supply is expected to happen again during Q2 2020 with an average of 92.5 Bcf/day expected for 2020.
  • Appalachia is becoming the country's top producer of natural gas, whereas gas is mainly produced as a by-product of oil drilling in West Texas, which adds to the supply glut.

Demand

  • The EIA raised their demand forecast for 2019 from 84.59 Bcf/day to 84.65/Bcf a day. Previously, the highest level of consumption recorded reached 82.07 Bcf/day in 2018.
  • As demand for natural gas in the summer is usually related to cooling needs, it will be affected by cooler than normal weather expected over the next two weeks.
  • Low prices have encouraged natural gas-fired electricity generation during summer 2019, which contributed to reducing the cost of electricity throughout the country.

Inventory

  • Every Thursday, the Department of Energy releases a natural gas inventory report.
  • Natural gas inventory in the U.S. is expected to rise by 57 Bcf this week.
  • Inventories increased by 65 Bcf last week, as analysts expected only a 42 Bcf increase.
  • At the end of July, inventories reached 2.7 trillion cubic feet (Tcf), which was 13% more than in July 2018, but still 4% lower than the 5-year average.
  • The EIA predicts that inventory growth in the April-October season will be superior to the 5-year average and reach over 3.7 Tcf at the end of October, a figure 16% higher than October 2018 and a little superior to the 5-year average.


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