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NGSA winter outlook sees colder temperatures, demand pushing US natural gas prices higher

Washington (Platts)--6 Oct 2016 750 am EDT/1150 GMT


Colder temperatures this winter are likely to drive up residential and commercial demand for natural gas and provide support for wholesale prices, compared with 16-year lows seen last winter, the Natural Gas Supply Association said in its winter outlook released Wednesday.

NGSA projects overall demand will rise 3.2 Bcf/d, or 3.6%, to a record average of 92.3 Bcf/d in the coming season as a winter that is forecast to be 12% colder than the year-ago period boosts demand from the residential and commercial sectors by a combined 4 Bcf/d, the group said in its winter 2016-17 outlook.

The trade association's outlook evaluates impact of weather, economic growth, customer demand, storage inventories and supply on prices. It expects support from weather and overall demand, while seeing a "neutral" impact from the economy, storage and winter supply.

The projection is based on published data from independent and government sources including the US Energy Information Administration and National Oceanic and Atmospheric Administration. NGSA used to Energy Ventures Analysis and EIA data for its demand and supply projections, and IHS Economics data for its economic projections.

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The projected demand increase in the outlook is tempered by a decline in power sector consumption, as the expected rise in gas prices will lead to reduced coal-to-gas switching.

"NGSA anticipates temporary fuel switching to natural gas to continue this winter, but at about half the volumes that took place during last winter's record-setting fuel switching," said Bill Green, chairman of NGSA and vice president, downstream marketing for Devon Energy, in a statement.

EVA projected the decline in the power sector demand to be 3.3 Bcf/d, or 13%.

Residential demand is "the biggest change from last year," Green said in a briefing for reporters. The outlook projected residential demand will grow by 12% compared with last winter's levels.

The EVA data underpinning the outlook puts average residential demand for the season at 22.8 Bcf/d, up 2.8 Bcf/d from last winter. It also points to a 2.4% rise in industrial demand to 22.9 Bcf/d, driven by new facilities coming online, including capacity expansions in the gas-intensive petrochemical and fertilizer industries.

Weather remains a major wildcard, according to Green, who said last year's outlook "failed miserably," because of what proved to be the second-warmest winter on record, with the average price at $1.98/MMBtu at Henry Hub, he said. This year's forecast of colder weather is still 3% warmer than the 30-year average, he noted.

"If it got 20% colder than normal I still think that with storage and all the production we have, we'll be fine," he said. There could still be some regional issues such as capacity constraints in the Northeast, he added, but the prices spikes seen in the past are less likely, he said.

Overall, Green said the market is well positioned, with robust production, full storage and new infrastructure adding flexibility.

"Somebody might say [prices will be] 50% higher. At $3 it's still an excellent price for generators and residential customers," he said.

The EVA report said that based on recent NYMEX futures prices, gas prices for the winter are expected to be 50% higher than they were last year.

On the storage and supply front, the NGSA outlook projected a small decrease in production of 0.5 Bcf/d, and a potential for record inventory of gas in storage.

Exports to Mexico are projected to grow 800 MMcf/d, Green said, adding the group expects that number to rise going forward as new infrastructure is built to carry gas to Mexico.

--Maya Weber, maya.weber@spglobal.com
--Edited by Keiron Greenhalgh, keiron.greenhalgh@spglobal.com

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