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EIA lifts forecasts for US gas production, trims 2021 price estimates

The US Energy Information Administration on Feb. 9 substantially increased its forecast for natural gas production in 2021 and 2022 amid expectations of more associated gas production in the Permian Basin, and trimmed its gas price forecasts for the current year.

The EIA, in its February Short-Term Energy Outlook, raised by 3.60 Bcf/d to 98.68 Bcf/d its total gas marketed production estimate for the US in the first quarter, and pushed up its Q2 forecast as well by 2.74 Bcf/d to 97.95 Bcf/d.

Estimates for the total marketed natural gas production over the next two years also rose, by 2.42 Bcf/d, to average 98.34 Bcf/d in 2021, and by 1.31 Bcf/d to 98.93 Bcf/d on average in 2022, EIA said.

“The upward revision reflects more forecast associated natural gas production from oil-directed wells in the Permian region,” according to the monthly report.

Natural gas prices were seen recovering from 2020 lows.

“The US benchmark Henry Hub natural gas spot price continues to increase after reaching its lowest annual average price in decades during 2020,” said EIA Acting Administrator Steve Nalley in a statement accompanying the report’s release. “EIA expects Henry Hub spot prices will average $2.95/MMBtu in 2021 and increase further to $3.27/MMBtu in 2022.”

The agency, however, lowered its forecast for Q1 Henry Hub spot prices by 16 cents to $2.85/MMBtu, as the Q2 forecast also fell 8 cents to $2.88/MMBtu.

The agency expected spot gas prices to average 2.98/MMBtu in February, reflecting continued strong LNG exports and a shrinking surplus in storage.

It noted an upside risk to the forecast for near-term prices, given that the temperature forecast in the outlook dates from late January, while more recent forecasts for mid-February indicate cold weather could reach much of the US.

Reflecting lower regional natural gas price assumptions in EIA’s electricity generation model than in the prior month, the EIA also increased its estimates for gas use in the power sector for 2021 and 2022. It forecast that gas use for power generation would be 1.43 trillion kWh in 2021 and 1.397 trillion kWh in 2022, up 3% and 5% respectively from the January estimates.

GAS DEMAND

On the demand side, the agency raised its natural gas consumption estimates by 1.08 Bcf/d to 98.94 Bcf/d for Q1, and by 1.53 Bcf/d to 70.07 Bcf/d for Q2.

Still, the share of power generated from gas was expected to decline from 39% in 2020 to 37% in 2021 and 35% in 2022, as a result of higher gas prices.

Overall, EIA is forecasting that total US consumption of natural gas will average 81.71 Bcf/d in 2021, down 1.9% from 2020, amid lower demand for gas consumed for electric power.

GENERATION

The share of power generation from renewables continues to increase, according to the outlook, reaching 21% in 2021 and 23% of generation in 2022, up from 20% in 2020. The EIA expects the power sector will add 15.3 GW of wind capacity in 2021 and 3.6 GW in 2022, down from 17.5 GW in 2020. Utility-scale solar additions are estimated at 16.2 GW in 2021 and 12.3 GW in 2022, up from 11.1 GW in 2020.

Turning to natural gas inventories, the outlook expects a return to normal at the end of the winter season, reaching about 1.8 Tcf in late March.

“Increased use of natural gas for space heating this winter and strong liquefied natural gas exports at a time when US natural gas production is relatively low will cause natural gas inventories–currently running above five-year average levels–to return to average levels by the end of March,” Nalley said.

US LNG exports are seen averaging 8.5 Bcf/d in 2021 and 9.2 Bcf/d in 2022.

The S&P Global Platts LNG Virtual Conference is gathering the industry to discuss navigation of the global pandemic and the associated risks, the ongoing transition of the global energy economy, policy implications of the 2020 US election and more.
Source: Platts

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