Colder weather forecasts and greater demand for natural gas than last winter are expected to place upward pressure on natural gas prices this winter compared to last winter’s unusually low prices, the Natural Gas Supply Association (NGSA) said Oct. 5.
The NGSA has published the 16th annual winter outlook assessment of the wholesale natural gas market. The report also noted there is an unusually high amount of natural gas in storage heading into the winter.
Using published data and independent analyses, NGSA evaluated the combined impact of weather, economic growth, customer demand, storage inventories and supply activity on the direction of natural gas prices for the winter of 2016-17 compared to last winter.
Natural gas supplies will be adequate to meet expected demand this winter. This is the net result of the higher storage withdrawals offsetting (1) increased demand; (2) reduced imports; and (3) nearly flat domestic production. Concerning the former, a key factor enabling the higher storage withdrawals is the high level of storage inventories entering the winter season, according to the report.
Combining demand from all the major customer sectors – residential and commercial, industrial, electric and exports– Energy Ventures Analysis (EVA) projects record demand of 92.3 Bcf/day, primarily because the forecasted 12% colder winter is predicted to increase winter demand from the residential and commercial sectors by a combined 4 Bcf/day on average.
NGSA emphasized that upward pressure on prices was in comparison to last winter, when wholesale winter natural gas prices at the Henry Hub averaged a 16-year low of $1.98 per MMBtu.
NGSA underscored that natural gas supplies are ample to meet winter demand, and that reliability is further enhanced by an anticipated near-record amount of natural gas in storage.
“The picture that emerged for the upcoming winter is one of a flexible natural gas market that is able to respond to changes in weather and customer demand with ample supply and full storage facilities,” said Bill Green, Chairman of NGSA and Vice President, Downstream Marketing, for Devon Energy (NYSE:DVN).
“Because of colder weather and growth in demand for natural gas, NGSA anticipates upward pressure on prices compared to last winter,” Green said.
“We’d like consumers to keep in mind that wholesale natural gas prices were unusually low last winter due to record warm winter weather. Last winter, wholesale prices averaged less than $2 per MMBtu, the lowest since the ‘90s and that’s not just because the winter was so mild. It’s also because of abundant gas from shale, with even more gas on tap from storage and a flexible and responsive pipeline infrastructure system.”
A decline in winter demand from the electric sector of 3.3 Bcf/day is expected to somewhat offset the other sectors’ growth. The drop in electric sector demand is attributable to less “fuel switching,” a temporary phenomenon that occurs when electric utilities temporarily switch to running gas-fired power plants because of lower fuel costs.
EVA forecasts significantly less short-term fuel switching to gas than last winter because of expected higher natural gas prices.
“NGSA anticipates temporary fuel-switching to natural gas to continue this winter, but at about half the volumes that took place during last winter’s record-setting fuel switching,” said Green.
In fact, the Energy Information Administration credits the power sector’s increased use of natural gas in 2015 to reducing CO2 emissions to the lowest levels since 1993.
Expectations for growth in industrial demand of 0.7 Bcf/day this winter contribute to the forecasted increase in total winter demand for natural gas. New builds and capacity expansions in the natural gas-intensive petrochemical and fertilizer industries continue to drive natural gas demand.
NGSA said 71 capacity expansions and new-build projects in the petrochemical and fertilizer industries are planned over the 2015-21 time period, consuming an estimated 3.7 Bcf/day more of natural gas annually by 2021.