NGSA: Downward pressure expected on gas prices this summer

Despite expectations for record-setting summer demand, pressure on this summer’s natural gas prices is likely to be downward compared with summer 2014, the Natural Gas Supply Association said in its 15th annual Summer Outlook assessment of the natural gas market. NGSA said it expects production to set records and be more than enough to meet demand.

Using published data and independent analyses, NGSA evaluated the combined impact of weather, economic growth, customer demand, storage inventories, and production activity on the direction of natural gas prices for summer 2015 compared with last summer, when Henry Hub prices averaged $4.19/MMbtu.

“When NGSA weighed all the different factors, the picture that emerged for the upcoming summer is one of remarkable growth, both in supply and in demand,” said Bill Green, NGSA chairman and Devon Energy Corp. vice-president, downstream marketing. “Even with record-setting demand expected, production is also projected to set summer records. With more than enough supply to meet demand, we anticipate downward pressure on prices compared to last summer,” Green said.

Demand

In the Outlook, slightly warmer weather is anticipated this summer vs. last and 4% warmer than the 30-year average. Average growth in gross domestic product similar to last winter is expected.

Combining demand from all the major customer sectors—electric, industrial, residential, and commercial—Energy Ventures Analysis (EVA) projects a record-setting 65 bcfd in demand this summer, mainly coming from the electric power and industrial sectors.

Most notably, the electric power sector is forecast to increase its summer demand by 8% compared with last summer. Much of the increase can be attributed to fuel switching. Some of the increase is attributable to a more permanent shift to natural gas-fired generation caused by the retirement of many coal-fired power plants with the implementation of the Mercury and Air Toxics Standards (MATS) rule in April.

“We anticipate electric demand for natural gas to reach near-record levels this summer,” said Green. The record was set in the summer of 2012, which was a significantly hotter summer than is forecast for summer 2015.

Demand from the industrial sector is expected to increase 4.5% compared with last summer. Green said 94 major natural gas–intensive industrial projects have been or will be completed between 2012 and 2020, representing $110-120 billion to build.

Residential and commercial demand will remain similar to last summer. While exports of LNG will not be a factor this summer, Green noted that 2015 will mark the first export shipments from Sabine Pass, “LNG exports will grow, but they will remain a small slice of overall demand in the next years,” Green said.

Supply

Due to drilling efficiencies and new infrastructure, record-setting production of 75 bcfd is projected this summer, providing more than enough supply and leading to larger inventory of gas in storage than last summer.

Green said, “The shale revolution has ushered in a remarkable era, as evidenced by dramatic growth in production over the last 8 years. This summer’s supply is expected to be even more robust than last year because of drilling efficiencies and new infrastructure coming online to move natural gas out of producing shale areas.”

Green said, “The important takeaway is the strength and responsiveness of natural gas supply. Since the onset of shale production on a large scale, we’ve had year after year of stability for consumers.”

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