EIA slashes Q4 Henry Hub spot gas price forecast

The Henry Hub natural gas spot price averaged $2.77/MMBtu in August, a decrease of 7 cents/MMBtu from the July price, the US EIA said in its latest Short-Term Energy Outlook.

The current STEO lowers the projection for prices slightly from last month’s forecast; monthly average spot prices remain lower than $3/MMBtu through November, and lower than $4/MMBtu through the remainder of the forecast. The projected Henry Hub natural gas price averages $2.84/MMBtu in 2015 and $3.11/MMBtu in 2016.

Natural gas futures contracts for December 2015 delivery traded during the five-day period ending September 3 averaged $2.91/MMBtu, EIA said.

Current options and futures prices imply that market participants place the lower and upper bounds for the 95% confidence interval for December 2015 contracts at $2.08/MMBtu and $4.06/MMBtu, respectively. At this time in 2014, the natural gas futures contract for December 2014 delivery averaged $4.07 /MMBtu, and the corresponding lower and upper limits of the 95% confidence interval were $3.09/MMBtu and $5.35/MMBtu, respectively.

Natural Gas Production and Trade

EIA expects that marketed natural gas production will increase by 4.2 Bcf/d (5.7%) and by 1.7 Bcf/d (2.2%) in 2015 and 2016, respectively.

The agency forecasts moderate production growth through 2016, with increases in the Lower 48 states expected to more than offset continuing production declines in the Gulf of Mexico. Increases in drilling efficiency will continue to support growing natural gas production in the forecast despite relatively low natural gas prices. Most of the growth is expected to come from the Marcellus Shale as the backlog of uncompleted wells is reduced and as new pipelines come online to deliver Marcellus natural gas to markets in the Northeast.

Increases in domestic natural gas production are expected to reduce demand for natural gas imports from Canada and to support growth in exports to Mexico. Earlier this year, natural gas net imports fell to the lowest monthly level since 1987, averaging 2.3 Bcf/d in both May and June. EIA expects natural gas exports to Mexico, particularly from the Eagle Ford Shale in South Texas, to increase because of growing demand from Mexico’s electric power sector coupled with flat natural gas production in Mexico.

EIA projects liquefied natural gas gross exports will increase to an average of 0.79 Bcf/d in 2016, with the startup of a major LNG liquefaction plant in the Lower 48 states.

Image: EIA