Colder weather forecasts and greater demand for natural gas than last winter are expected to place upward pressure on gas prices this winter compared with last winter’s unusually low prices, the Natural Gas Supply Association said in its 2016-17 Winter Outlook assessment of the wholesale gas market.
Combined demand from all the major customer segments—residential and commercial, industrial, electric, and exports—will reach a record level of 92.3 bcfd this winter, primarily due to the forecasted 12% colder winter, NGSA said.
The association also underscored that gas supplies are ample to meet winter demand, and that reliability is further enhanced by an anticipated near-record amount of gas in underground 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. Because of colder weather and growth in demand for natural gas, NGSA anticipates upward pressure on prices compared to last winter,” said Bill Green, NGSA chairman and vice-president, downstream marketing, for Devon Energy Corp.
“We’d like consumers to keep in mind that wholesale natural gas prices were unusually low last winter due to record warm winter weather,” Green said. “Last winter, wholesale prices averaged less than $2/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.”
Key demand factors
The forecasted colder winter is expected to increase gas demand from the residential and commercial segments by a combined average of 4 bcfd, according to Energy Ventures Analysis (EVA).
Industrial segment demand this winter is projected to set a new record, although it will increase only 0.7 bcfd compared with last winter. New builds and capacity expansions in the gas-intensive petrochemical and fertilizer industries continue to drive demand. NGSA said 71 capacity expansions and newbuild projects in these industries are planned over 2015-21, consuming an estimated 3.7 bcfd more of gas by 2021.
Growth in exports to Mexico as well as exports of LNG contribute to the increased demand, winter-over-winter. EVA projects Mexican exports to rise 0.8 bcfd and LNG exports to average an additional 0.8 bcfd. “While LNG exports are growing, they remain a very small slice of overall demand,” Green said.
The electric sector demand is expected to decline 3.3 bcfd this winter, attributable to less fuel switching. EVA forecasts significantly less short-term fuel switching to gas than last winter because of expected higher 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 US Energy Information Administration credits the power sector’s increased use of gas in 2015 to reducing carbon dioxide emissions to the lowest levels since 1993.
Key supply factors
Turning to this winter’s gas supply fundamentals, the outlook projects a winter of robust production, although production will drop slightly by 0.5 bcfd from last year’s record high. There is potential for record inventory of gas in storage, similar to last winter. About 16% of winter supply comes from storage on average.
Green said, “The shale revolution has ushered in a remarkable era, as evidenced by dramatic growth in production over the last 9 years. Despite the low rig count, this winter’s supply is expected to remain robust because of drilling efficiencies and new infrastructure coming online to move natural gas to customers.”
Green said, “The important takeaway is the strength and responsiveness of natural gas supply. When you take into account the expectation for record storage and the strength and flexibility of the natural gas pipeline system, the industry is well-positioned to meet record demand from consumers.”