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.


Proposed next steps:

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After initial research, we propose to provide 3 insights or trends about the U.S. natural gas market. These would be information and data about the demand, supply, and prices, and should include forecasts or outlooks for 2019 and first semester 2020. Sources should preferably be 1 month old at the most.