Illustration; Source: EIA

Warm weather brings down U.S. natural gas price forecast

Following higher-than-expected temperatures at the start of 2023, the U.S. Energy Information Administration (EIA) has lowered the U.S. natural gas price forecast for this year.

Illustration; Source: EIA

According to EIA’s February Short-Term Energy Outlook(STEO), a warmer-than-normal start to the year has reduced natural gas consumption to below average, thus, natural gas prices at the Henry Hub are expected to average around $3.40 per million British thermal units in 2023, 47 per cent lower than in 2022.

Joe DeCarolis, EIA Administrator, remarked: “U.S. natural gas inventories fell by less than our expectations in January because of the warmer-than-average weather. With more natural gas in inventory, we reduced our forecast for natural gas prices over the coming year.

“There is still a lot of uncertainty, including the possibility of extreme weather later this winter that could increase demand and temporarily slow down production, but those possibilities decrease as we approach spring.”

Based on the Energy Information Administration’s findings, the increased natural gas production and less demand have allowed U.S. natural gas inventories to rise after a period of below-average levels. As a result, EIA expects natural gas inventories to remain above average through the summer. In light of this, inventories are anticipated to close the withdrawal season at the end of March at more than 1.8 trillion cubic feet, 16 per cent more than the five-year average.

“We expect about 4 per cent less energy-related carbon dioxide emissions in 2023, which is driven largely by a 15 per cent decrease in emissions from coal this year,” added DeCarolis.

In line with this, EIA expects U.S. electricity generation to decrease by 2 per cent in 2023, with even larger reductions in coal-fired generation while less electricity generation largely stems from reductions in consumption in the residential and industrial sectors.

Furthermore, the Energy Information Administration predicts that U.S. coal exports will increase by about 2 per cent in 2023 and 9 per cent in 2024, largely to supply the growing demand in Europe and Asia, as Europe has been using more coal for electricity generation while the region looks to limit its consumption of natural gas from Russia.

Source: EIA
Source: EIA

“Even as global demand for coal is growing, we expect that reduced U.S. demand will lead to less coal production in the United States this year and in 2024,” highlighted DeCarolis.

Meanwhile, Russia and China remain sources of uncertainty in EIA’s STEO forecasts. While global demand for jet fuel has increased as China’s economy has opened up following pandemic lockdowns, Russia’s crude oil exports have largely gone unchanged since the EU instituted a ban on seaborne crude oil imports from Russia.

Moreover, EIA expects global liquid fuels consumption to increase by 1.1 million barrels per day (b/d) in 2023 and by 1.8 million b/d in 2024, driven primarily by growth in China and other non-OECD countries. On the other hand, oil production in Russia is anticipated to average 9.9 million b/d in 2023, down 1.1 million b/d from 2022.

EIA’s forecast for Russia’s 2023 production is 0.4 million b/d more than in the January STEO because crude oil liftings data suggest that Russia’s exports have remained higher than expected following the EU’s ban on seaborne imports of crude oil from Russia that began on 5 December.

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However, the Energy Information Administration still forecasts Russia’s oil production to fall in the coming months, as the EU’s ban on seaborne petroleum products from Russia that started on 5 February causes refineries in Russia to reduce crude oil inputs, which will disrupt crude oil production.

“We continue to monitor developments in Russia and China because of their impact on the global energy sector,” underlined DeCarolis.

Recently, EIA disclosed in a report that the proven reserves of natural gas reported by operators established a new record in the United States in 2021, while proven U.S. reserves of oil increased but did not quite return to pre-pandemic levels.