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The US Energy Information Administration lifted its Henry Hub natural gas price forecast for the second and third quarters of 2020 on Tuesday, even as the agency substantially trimmed its estimates for production and consumption over the same period, citing coronavirus pandemic-related impacts.
The agency, in its May Short-Term Energy Outlook, lowered its US gas consumption estimate by 3.19 Bcf/d to 71.6 Bcf/d for Q2, and by 1.84 Bcf/d to 72.92 Bcf/d for Q3.
“EIA forecasts that US natural gas consumption in 2020 will be 3.9% lower compared with 2019, primarily as a result of less consumption by the industrial sector,” said EIA Administrator Linda Capuano.
The agency forecast that industrial demand for gas will decline 7% in 2020, reflecting lower economic activity.
Production to decline
On the supply side, EIA lowered by 2.09 Bcf/d to 98.38 Bcf/d its gas marketed production estimate for Q2, and paired back its Q3 production forecast by 2.64 Bcf/d to 95.14 Bcf/d.
The forecast includes a model-based drop that kicks in when West Texas Intermediate crude falls below $45/b, or when Henry Hub is lower than $2/MMBtu. But EIA also assumed another 30% drop in Q2 on average and 6% drop in Q3 due to travel restrictions related to the pandemic.
The storage build for the March-October injection season is expected to be slightly higher than normal, as consumption was forecast to decline more quickly than production, and a slower economy trims gas use for electricity generation.
But gas prices were seen rising at the end of May as US production declines and use of gas for power generation increases.
EIA raised its forecast for Q2 spot Henry Hub gas prices by 13 cents to $1.85/MMBtu. The Q3 forecast also rose 2 cents compared with the previous month’s estimate to $2.11/MMBtu.
“EIA expects natural gas prices to remain low in the near term as reduced business activity and higher-than-average storage levels keep downward pressure on prices,” Capuano said.
The agency projected Henry Hub gas prices would average $2.14/MMBtu for full-year 2020 and $2.89/MMBtu in 2021, up 3 cents from the previous month’s estimate of $2.11/MMBtu for 2020, but down 9 cents from the $2.98/MMBtu estimated last month for 2021.
Coal plummets, gas stable
Stay-at-home orders over the next few months were expected to continue to restrain electricity demand, and wholesale power prices were forecast to be lower in 2020 throughout the US, amid an economic slowdown and low gas costs.
Total US generation was forecast to decline 5% in 2020, with less fossil fuel-fired generation accounting for most of the drop, according to Capuano.
Coal-fired generation was seen falling by 25% year on year in 2020, while renewable generation was seen growing by 11% as a result of new capacity, she added.
Gas-fired generation was expected to be relatively flat, inching 0.5% lower in 2020, compared with 2019, in the forecast. This marks the first decline since 2017 when gas-fired generation fell 6.5% from the 2016 total.
