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US EIA raises Q2 Henry Hub spot gas price forecast 15 cents

Washington (Platts)--11 Apr 2017 541 pm EDT/2141 GMT


The US Energy Information Administration raised its forecast for second-quarter spot natural gas prices and said prices for 2017 and 2018 would likely be further buoyed by added exports and rising consumption.

While gas production levels are expected to be higher, on average, this year for the first time since 2005 after declining last year, the EIA in its April Short-Term Energy Outlook nonetheless scaled back its production estimates from the prior-month's report.

The outlook released Tuesday raised the Q2 Henry Hub natural gas spot price forecast to $3.04/MMBtu, 15 cents above the agency's estimate a month earlier.

Prices picked up in March, averaging $2.88/MMBtu, the agency said, as temperatures returned closer to seasonal norms after significantly warmer-than-normal eather in February. EIA's Q3 estimate in the April report slid 3 cents to $3.06/MMBtu.

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The agency said new gas-export capabilities and growing domestic consumption would contribute to the expected rise in prices for full years 2017 and 2018, compared with 2016, when the average was estimated at $2.51/MMBtu.

For 2017, Henry Hub prices are projected to average $3.10/MMBtu, 7 cents above what was indicated in March. The forecast for 2018 stayed steady at $3.45/MMBtu.

On the supply side, EIA lowered its Q2 gas marketed production estimate 910 MMcf/d to 77.48 Bcf/d, and trimmed its Q3 projections 250 MMcf/d to 79.47 Bcf/d.

EIA also scaled back its full-year production estimates compared with the prior month's forecast, with 2017 average estimates down 610 MMcf/d to 78.32 Bcf/d and 2018 estimates 740 MMcf/d lower at 82.82 Bcf/d.

Nonetheless, the agency expects production to exceed the 2016 average of 77.31 Bcf/d, when production declined for the first time since 2005.

Turning to demand, EIA also lowered its gas consumption estimates by 490 MMcf/d to 64.84 Bcf/d in Q2 and by 660 MMcf/d to 66.17 Bcf/d in Q3.

"The amount of electricity generated from natural gas this summer is forecast to be lower than last summer, reflecting higher natural gas prices," said EIA Acting Administrator Howard Gruenspecht in a statement accompanying the report.

The agency also cut its estimates of natural gas consumption for 2017 by 310 MMcf/d to 73.34 Bcf/d, but raised its 2018 demand estimates by 690 MMcf/d to average 76.06 Bcf/d. The 2016 average was 75.13 Bcf/d, according to April's report.

Looking at working gas storage stocks, EIA noted that on March 31, typically the end of withdrawal season, levels were 15% above the five-year average, but 17% below last year's record high at the end of March. Draws were higher this winter because of lower production and higher exports, EIA said.

The agency expects exports this year to rise more than production, moving storage stocks closer to the five-year average at the start of the heating season.

"The narrowing of inventory levels to the five-year average is reflected in the forecast for rising natural gas prices," the report said.

The share of utility-scale generation from gas is expected to fall to 32% in both 2017 and 2018 from 34% in 2016, on higher expected gas prices, EIA said. The share of generation relying on coal, by contrast, would tick up to 31% in 2017 and 2018 from 30% in 2016. That shift will help drive coal production 4% higher in 2017 and up another 2% in 2018, the outlook predicted.

In total, generation from utility-scale plants is projected to dip 0.7% in 2017, then rise 1.7% in 2018, the report said. Sizable growth is seen for utility-scale solar capacity, which EIA expects to rise 44% from the end of 2016 to 31 GW at the end of 2018, reaching 1% of total capacity.

--Maya Weber, maya.weber@spglobal.com

--Edited by Valarie Jackson, valarie.jackson@spglobal.com

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