US demand for natural gas is projected to reach an all-time high this winter, but soaring production will ably satisfy demand, resulting in flat pressure on prices compared to last winter, the Natural Gas Supply Association said in its 18th annual Winter Outlook forecast of the wholesale winter gas market.
“The picture that emerged for the upcoming winter is of a natural gas market experiencing substantial growth in both demand and supply. Record demand will be driven by the longer-term shift to natural gas in the electric and industrial sectors resulting from natural gas’ competitive prices and environmental benefits,” said Donald Jenkins, vice-chairman of NGSA and EQT Corp.’s chief commercial officer.
“We’d like consumers to keep in mind that wholesale natural gas prices averaged only about $3/MMbtu last winter, thanks to abundant natural gas from shale and a flexible and responsive pipeline infrastructure system,” Jenkins said.
Key demand, supply factors
Combining demand from all the major customer sectors—residential and commercial, industrial, electric and exports—Energy Ventures Analysis (EVA) projects record demand of 102.7 bcfd.
Growth in LNG exports and pipeline exports to Mexico contribute more than any other sector to the increased winter-over-winter demand. The outlook projects Mexican exports to increase by 800 MMcfd and LNG exports to rise to 4.7 bcfd from a winter average of 3 bcfd.
Jenkins said, “LNG exports and exports to Mexico by pipeline are projected to grow substantially, with LNG exports bringing the environmental benefits of our low carbon emissions to overseas customers, while providing jobs, economic benefits, and stability to the US market. This marks the second year that the US is a net exporter of LNG, but the amount we are exporting remains small compared to our supply base and the total US market.”
NGSA’s outlook forecasts that electric power demand for gas will increase by 700 MMcfd due to gas-fired capacity replacing retiring coal plants. More than 90% of that capacity is in the form of highly efficient and reliable combined-cycle gas turbines. The forecast for a slightly warmer winter will mean that power plants may not run as much as last winter, slightly dampening demand.
Expectations for slight growth in industrial demand of 400 MMcfd this winter contribute to the forecasted increase in total winter demand for gas. Newbuilds and capacity expansions in the gas-intensive petrochemical and fertilizer industries continue to drive the industrial sector’s demand for gas. NGSA said 46 major projects are planned over 2018-23, consuming an estimated 2.1 bcfd/year more of gas by 2023.
Finally, EVA expects that demand from the residential and commercial sectors will slightly decrease compared with last winter due to warmer weather.
Turning to this winter’s gas supply fundamentals, the outlook projects a winter of tremendous growth in production of more than 7 bcfd, which is about a 10% increase.
Jenkins said, “The shale revolution has ushered in a remarkable era, as evidenced by dramatic growth in production over the last 10 years. Drilling efficiencies continue to keep production flowing and new pipeline infrastructure can bring it to customers.”
Jenkins said, “The important takeaway is the strength and responsiveness of natural gas supply. When you take into account the expectation for tremendous production, the industry is well-positioned to meet record demand from consumers.”
Storage, weather, economy
Going into the winter heating season, NGSA projected that 3,302 bcf of gas will be in storage. This level is 13% lower than last year’s inventories and the lowest level of gas in storage at the start of the winter heating season since 2005, prior to the shale revolution.
Although the lower level of gas in storage is likely to place upward pressure on gas prices, the robust production and flexibility offered by the gas delivery system provides optionality and alternatives to storage this winter, NGSA said.
NGSA anticipated this winter to be 1% warmer than last winter and 2% warmer than the 30-year average.
Meantime, economic indicators generally reflect good news for consumers, but the changes are not quite large enough to pressure gas prices, although an unexpected upshift in gross domestic product could change the direction of the arrow from flat to upward.