Natural gas prices in the US will be lower than earlier forecast this year but will ease back up in 2017, says Barclays Research, citing storage patterns.
Because gas inventories will end winter above forecast levels at what it expects to be 49% above the 5-year average, Barclays has lowered its projected average gas price for 2016 to $2.50/MMbtu from $2.56/MMbtu.
As demand grows and storage pressures ease in 2017, the firm says, the average gas price will rise to $3.05/MMbtu--$2.90/MMbtu in the first half and $3.20/MMbtu in the second half.
Production from the US Northeast will have to augment storage withdrawals to meet demand in 2017, until then offsetting declines in gas associated with shrinking oil production.
Barclays expects demand this year to be boosted by suppressed gas prices in a trend set to continue in 2017, when new industrial facilities start up LNG and pipeline exports grow.
“The major unknowns for 2017 will come on the production side and will specifically focus on the Northeast’s ability to grow and the levels of associated gas production potentially reentering the market when oil prices rebound,” Barclays says. “The load will continue to fall on the Northeast. Although we do forecast a tick-up in associated gas as oil moves higher, it is unlikely to be sufficient in both quantity and required lead time.”
The firm projects gas in storage at the end of October 2017 to total 3.7 tcf.
“Given new demand entering the market, it is questionable how the market will view that number given the previous two winters have entered the season at around 4 tcf,” Barclays says.