EIA boosts late-2021 spot gas price estimates, as Ida, slower injections take toll (2024)

Highlights

Q4 Henry Hub spot price forecast raised 54 cents to $4/MMBtu

Agency lowers expected Q4 gas marketed production by 420 MMcf/d

US Energy Information Administration raised its spot natural gas price estimates for the rest of 2021, as flat production further hindered by Hurricane Ida combined with lower natural gas injections and robust exports to affect the agency's short-term outlook.

EIA in its September Short-Term Energy Outlook raised its forecast for Q3 Henry Hub natural gas spot prices by 29 cents to $4/MMBtu. The Q4 forecast rose even more sharply, by 54 cents from the previous month's estimates to $4/MMBtu.

"Hurricane Ida affected natural gas production at a time that the United States was already experiencing higher natural gas prices due to growth in exports, strong domestic natural gas consumption, and relatively flat natural gas production," said EIA Acting Administrator Steve Nalley, in a statement accompanying the report. "Lost production from the storm combined with these current market conditions has limited our ability to build up natural gas inventories, and we expect that will keep prices higher in the short term than we had previously thought."

The agency projected Henry Hub prices would average $3.63/MMBtu for full-year 2021 and $3.47/MMBtu in 2022 -- up 21 cents and 39 cents, respectively, from the previous month's estimates.

EIA expects natural gas and crude oil production, as well as refining, will gradually come back online through September, after Hurricane Ida led producers to close more than 90% of capacity in the Gulf of Mexico, it said.

On the NYMEX, Henry Hub futures prices on Sept. 8 jumped more than 30 cents, with the December and January contracts climbing to historic highs at over $5/MMBtu, as the market grows increasingly concerned over the sustained drop in offshore production and persistently low US inventory levels.

In highlighting higher August spot prices, EIA said the rise mostly reflected growth in LNG exports, rising consumption for sectors other than power, and relatively flat production.

"Forecast Henry Hub prices this winter reach a monthly average peak of $4.25/MMBtu in January and generally decline through 2022, averaging $3.47/MMBtu for the year amid rising US natural gas production and slowing growth in LNG exports," the outlook said.

Production outlook

The agency lowered by 420 MMcf/d to 100.58 Bcf/d its natural gas marketed production estimate for the US in Q4, while at the same time raising its 2022 production forecast by 590 MMcf/d to 103.51 Bcf/d.

"We expect that natural gas production in the [Gulf of Mexico] will gradually come back online during the first half of September and average 1.5 Bcf/d for the month before returning to an average of 2.1 Bcf/d in 4Q21," the report said. Dry gas production was seen rising in 2022, driven by natural gas and crude oil prices.

Lower storage levels also stood out, with EIA estimating that inventories ended August at 2.9 Tcf, about 7% below the five-year average, as a hot summer combined with robust exports and generally flat production. Inventories are forecast to end the 2021 injection season at nearly 3.6 Tcf, or 5% below the five-year average.

On the demand side, EIA forecast that consumption will average 82.54 Bcf/d in 2021, 0.9% below 2020 levels, partly because higher gas prices are expected to drive gas-to-coal switching for power generation.

The agency raised its natural gas consumption estimates by 1.33 Bcf/d to 74.48 Bcf/d for Q3, but lowered its Q4 consumption estimate by 1.71 Bcf/d to 84.62 Bcf/d.

Consumption estimates in 2022 are forecast to average 82.6 Bcf/d, roughly level with 2021 levels, but 1.18 Bcf/d below estimates EIA released in August.

Fuel mix changes

The agency expects the share of gas as a generating fuel to drop in 2021, in response to gas prices for generation reaching $4.69/MMBtu, and in 2022, due to increased generation from renewables. Dropping from its 39% share in 2020, gas-fired power is seen averaging 35% of the generating fuel mix in 2021 and 34% in 2022, while coal-fired generation climbs from 20% in 2020 to 24% in 2021 and 2022.

The agency expects to see continued wind and solar capacity additions in 2021 and 2022, with 17.6 GW of new wind capacity coming online in 2021 and 6.3 GW in 2022, and as utility-scale solar additions reach 15.9 GW in 2021 and 16.3 GW in 2022.

Small-scale solar capacity also is estimated to increased by more than 11.5 GW in 2021 and 2022.

"Many Americans began investing in home improvement projects starting in 2020, as they were spending more time at home. Installing solar panels was a major part of that, and we expect the trend to keep growing through next year," according to Nalley.

Overall, EIA estimated the share of renewable generation will be roughly flat in 2021, averaging 20%, amid somewhat lower hydropower generation, before rising to 22% in 2022.