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NGSA forecasts slightly higher gas prices this winter

The Natural Gas Supply Association predicted slightly higher upward pressure on prices in the 2012-13 heating season as it released its 12th annual Winter Outlook. Henry Hub prices will average $2.75/MMbtu from November through March, slightly above the comparable period a year earlier, NGSA forecast.

“When NGSA weighed all the different pressure points, the picture that emerged for this winter is one of increased demand for gas that is easily matched by ample production and gas in storage,” said NGSA Vice-Chairman Greg Vesey, who also is president of Chevron Natural Gas.

Using public data and independent analyses, NGSA evaluated the combined impact of the economy, weather, customer demand, production, and storage inventories on the direction of gas prices this coming winter. “When all the factors are combined, we expect soft upward pressure on prices compared with last winter,” Vesey said.

“The higher demand forecast is primarily due to [the National Oceanic and Atmospheric Administration’s] prediction of colder winter weather, which in turn would increase the amount of gas consumed by residential and commercial customers by 16%,” he continued.

NOAA data show that the 2011-12 winter period was the warmest on record, NGSA said. It added that the agency’s forecasters are predicting a return to normal, colder weather patterns in the coming months.

Other demand trends

NGSA said industrial demand, which is less sensitive to weather, is projected to be comparable to a year earlier, according to Energy Ventures Analysis Inc. of Arlington, Va. Demand for gas to generate electricity is expected to remain the same as more utilities switch to gas from coal for economic reasons, EVA said.

Vesey said ICF International of Fairfax, Va., meanwhile, estimates average US gas production during the 2012-13 winter months will not change year-to-year, even though there are 37% fewer gas-directed drilling rigs and 33% fewer annual well completions.

“Multiple wells now are being horizontally drilled from a single site, which is one of the reasons that rig count is no longer a strong indicator of production,” he explained.

ICF’s analysis also forecast a sharp drop in dry gas activity as drilling continues moving to liquids-rich gas and tight oil. It also predicted rapidly increased tight oil and associated gas production, leading to further oil production growth in the Lower 48.

“The important takeaway is the strength and responsiveness of supply,” Vesey said. “Since the onset of shale production on a large scale, we’ve had four straight winter forecasts for level price pressure. Natural gas suppliers stand ready to meet demand and customers’ needs.”

Contact Nick Snow at nicks@pennwell.com.


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