NGSA forecasts lower winter gas prices on a combined analysis

In its 14th annual Winter Outlook assessment of the natural gas market, the Natural Gas Supply Association (NGSA) expects downward price pressure on the natural gas market compared with last winter.

In its 14th annual Winter Outlook assessment of the natural gas market, the Natural Gas Supply Association (NGSA) expects downward price pressure on the natural gas market compared with last winter.

This assessment is based on a combined analysis of the economy, weather, demand, production, and storage, including:

• Demand will be less this winter.

• US production has increased.

• Storage inventories at the beginning of the winter season (Nov. 1) will be adequate. More specifically, average storage withdrawals this winter are projected to be only 12.9 bcfd, or 35% below last winter’s record storage withdrawal of 19.7 bcfd.

Average growth in gross domestic product similar to last winter is expected, which exerts a neutral effect on gas prices.

“When NGSA weighed all the different pressure points, the picture that emerged for the upcoming winter is one of remarkable growth in supply and steady underlying growth in demand that will be moderated by the forecast for a warmer winter than last year’s,” said Greg Vesey, NGSA chairman and vice-president of Gas Supply & Trading for Chevron Corp.

“The abundant supply of natural gas is great news for consumers,” said Vesey. “When all key supply and demand factors are combined, we anticipate downward pressure on prices compared to last winter.”

Demand

Anticipated return to normal winter weather compared to last year’s extreme cold will drive down overall gas demand to 87.7 bcfd, which is 3.4 bcfd less than last winter’s record demand levels, NGSA said.

Demand from the weather-sensitive residential and commercial sectors, representing more than 40% of customer demand in the winter, will decline and mask growth in other sectors this winter.

Notably, the industrial sector is forecast to increase its winter demand by 6% compared with last winter, returning to the highest levels since the 1990s.

Gas use from the electric sector is expected to increase very slightly compared to last winter, primarily due to more “fuel switching,” when utilities temporarily switch to using gas-fired power plants due to lower fuel costs.

“The historic trend of coal-to-gas switching is expected to continue for a seventh consecutive winter,” Vesey said.

Supply

NGSA’s outlook projects another winter of strong US gas production because of drilling activity and system events increasing flowing gas supplies. Production from the US Lower 48 this winter will reach 70.8 bcfd compared with 67.2 bcfd last winter.

Vesey said, “The shale revolution has ushered in a remarkable era, as evidenced by dramatic growth in production over the last 6 years. This winter’s supply is expected to be even more robust than last year because of abundant shale and numerous new pipeline projects coming online to move natural gas out of producing shale areas.”

He added, “New infrastructure and improved drilling efficiencies are not the only reasons for abundant production. A solid 7% of this winter’s production is expected to come from ‘associated’ gas that is produced from oil wells. We expect associated gas to continue to be a key component of winter supply as oil drilling in the Bakken and Eagle Ford continues.”

Net imports for the forthcoming winter are expected to be about 3.2 bcfd, which is 0.8 bcfd, or about 20%, less than the net imports for the last winter. This decline is due to an increase in Mexican exports and a decline in Canadian imports. US LNG net imports are expected to, in essence, be the same as last winter, with almost all the imported supply going to the Everett, Mass., terminal to supply New England.

Because of the expected reduction in winter gas consumption and reduced requirements for storage withdrawals, total gas supply for the forthcoming winter will be 4 bcfd, which is less than that for last winter.

Contact Conglin Xu at conglinx@ogjonline.com.

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