Cautious optimism was the prevailing theme as the US Federal Energy Regulatory Commission's Office of Enforcement looked ahead to the 2016-17 heating season. "Natural gas and power markets are well supplied going into the winter, with plentiful storage, a better-connected pipeline system, and the ability to draw greater imports from Canada through pipelines and higher imports of [LNG] into New England," it said on Oct. 20.
"However, US gas production is down slightly from last year, and prices are likely to be moderately higher than last winter," FERC said. "Most forecasters expect winter temperatures across the Northern US to be average, while most sectors of the gas market should see strong demand relative to last year's record warm winter. There are challenges though, specifically in regional markets like New England and California, where operational issues could create some regionalized gas and power risk."
Total US gas demand could rise by more than 5 bcfd year-to-year, the forecast said. "With normal winter temperatures forecast for the Upper Midwest and Northeast, most analysts expect the residential and commercial sector to show the largest change in demand, adding 5-6 bcfd relative to last year. This would return residential and commercial demand to more typical winter levels, or slightly above the 5-year average," it said.
Gas exports rose in 2016, and are expected to do so this winter. Exports to Mexico on pipelines from the US and to international markets as LNG, combined, could climb by more than 1.9 bcfd year-to-year in the 2016-17 winter heating season, FERC's forecast said.
"The opening of the border-crossing NET Mexico Pipeline, as well as the expansion of several pipelines on the Mexican side, has enabled more export volumes from Texas, New Mexico, and Arizona," it noted. "Flows from the US to Mexico topped 4 bcfd on several days this summer, marking an all-time high. This will fall back slightly during the winter in a typical seasonal drop due to lower Mexican power generation."
LNG exports grew
LNG exports also increased with the commissioning and commercial startup of Cheniere Energy's Sabine Pass terminal in Louisiana, the forecast said. "So far, the export volumes have had little measurable impact on gas prices and we do not expect a significant impact this winter," FERC's analysts observed.
US gas production declined in 2016's first 9 months for the first time year-to-year in 5 years, or roughly since large-scale recovery from tight shale formations began, they said. Changes varied by region, but additional pipelines have improved connections between supply basins and markets, particularly in Appalachia, where producers could bring hundreds of drilled but uncompleted wells online, FERC's forecast said.
Nick Snow
NICK SNOW covered oil and gas in Washington for more than 30 years. He worked in several capacities for The Oil Daily and was founding editor of Petroleum Finance Week before joining OGJ as its Washington correspondent in September 2005 and becoming its full-time Washington editor in October 2007. He retired from OGJ in January 2020.