EIA Lowers Gas Production, Price Forecast in July STEO Report

July 10, 2020
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Dry gas production will be 10 Bcf/d below December 2019 levels (y-o-y) during this winter, per the forecast. The EIA foresees U.S. dry gas production falling through 2Q2021 to a low of 83.04 Bcf/d, nearly 13 Bcf/d below its peak of 96.25 Bcf/d reached in November 2019.

Dry gas production is expected to fall through the end of 2020, according to the EIA. EIA data shows U.S. dry gas production averaged 89.9 Bcf/d in the second quarter of 2020, down 6.1 Bcf/d (6.3%) from the fourth quarter of 2019. The EIA forecasts dry natural gas production in the United States will average 89.2 Bcf/d in 2020, down 3.0 Bcf/d (3.2%) from 2019. The declines are the result of a sharp drop in drilling activity because of low natural gas and crude oil prices and because of production curtailments, with the bulk of the reduction coming from oil-directed wells in the Permian Basin, according to the EIA.

In 2021, the EIA expects dry natural gas production to decline by 5.0 Bcf/d (5.6%) from 2020. The EIA forecasts the bottom for natural gas production to occur in the second quarter of 2021 at an average of 83.3 Bcf/d, which would be down 12.7 Bcf/d (13.2%) from the fourth-quarter 2019 peak. However, toward the second half of 2021, as Henry Hub prices rise and economic conditions become more favorable, the EIA expects dry natural gas production to increase, reaching 85.6 Bcf/d in the fourth quarter of 2021.

The EIA foresees U.S. consumption will decrease by 2.6 Bcf/d (3.1%) in 2020 before decreasing by an additional 3.7 Bcf/d (4.5%) in 2021. The EIA expects combined U.S. residential and commercial natural gas consumption will average 21.8 Bcf/d in 2020, down 6.8% from 2019, primarily because of warmer-than-average temperatures in the first quarter of 2020 that reduced demand for space heating. EIA forecasts U.S. consumption of natural gas by the industrial sector will decline by 6.2% in 2020. Most of this 2020 decrease is the result of less manufacturing activity following COVID-19 mitigation efforts.

The EIA has lowered its Henry-Hub natural gas spot price forecast for 2H2020 to average $2.05/MMBtu, down from $2.26/MMBtu in last month’s STEO report. The EIA cited lower LNG exports, depressed industrial demand as the primary divers behind the revision.

The EIA also revised its expectations for U.S. LNG exports throughout the remainder of the year. U.S. LNG exports averaged 3.6 Bcf/d in June and are forecasted to average 2.2 Bcf/d in July and August, according to the EIA. The agency expects U.S. LNG exports to increase beginning in September and average 7.1 Bcf/d from December 2020–February 2021 as global natural gas demand gradually recovers.

We continue to monitor oil, gas, NGLs, and regional markets for hedging opportunities. To learn more and see AEGIS opinion and recommendations, go to AEGIS View publications, or contact info@aegis-energy.com. Like what you see? Share this article with the button on the bottom right of your desktop. Market questions or comments? Contact us at view@aegis-energy.com

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