The EIA significantly reduced their gas production forecasts in their April Short Term Energy Outlook (STEO). These forecasts reflect the first full month of changes after March’s oil-price collapse and COVID-19 market impacts.
The EIA’s current gas-production forecasts are close to AEGIS’ internal models. AEGIS maintains a bullish point of view on natural gas prices, especially heading into 2021.
Looking at the Natural Gas STEO Production chart below, we can see the evolution of the EIA’s forecasted outlook. The March forecast, released last month, was delayed, by a day, in order to incorporate the effects of the oil-price collapse and the widespread COVID-19 outbreak. April is the first month to include the full effects of the current market situation.
Compared to the March forecast, the EIA believes production will be, on average, 4.7 Bcf/d lower going through 2021. AEGIS’ internal production forecasts concur with this outlook, albeit with production staying lower for longer. However, we see hedges and Permian-basin flaring partially mitigating production declines.
On the demand side, the EIA noticeably lowered their estimates compared to changes in previous months. The average decline in demand across the forecasted strip is approximately 4.0 Bcf/d versus their month-ago forecast.
AEGIS believes the 2021 natural-gas market will be relatively undersupplied compared to 2019 and 2020. This undersupply will come from lower associated-gas growth due to (1) oil well shut-ins and (2) less development in both oil and rich-gas wells. Even though we expect demand growth in 2021 to be minimal, the potential size of supply losses should carry price higher.
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