US EIA slashes spot gas price forecast on warm start to winter, production gains

Highlights

Lowers Q1 Henry Hub spot forecast 62 cents to $2.80/MMBtu

Raises Q4 gas marketed production by 250 MMcf/d to 114.78 Bcf/d

• Author Maya Weber Editor Richard Rubin 12 Dec 2023 | 21:02 UTC

The US Energy Information Administration sharply lowered its Henry Hub spot natural gas price forecast for winter 2023-24, based on robust production and a warmer start to the season that has cut space-heating demand estimates.

The agency, in its December Short-Term Energy Outlook, estimated that the benchmark Henry Hub spot prices will average about $2.80/MMBtu for the November-March period, marking a 60-cent reduction from the EIA's November estimate.

"We're seeing record domestic natural gas production paired with lower-than-expected natural gas demand, and we expect that is going to push prices lower this winter season," said EIA Administrator Joseph DeCarolis.

The short-term outlook also cast high gas storage inventory levels as contributing to the reduced gas price forecast.

Inventories reached 3.77 Tcf at the end of November, or 7% above the five-year average, the EIA said, and are now forecast to end the winter 22% above the five-year average, at more than 2 Tcf.

The Q4 forecast for Q4 Henry Hub spot prices fell by 45 cents to $2.81/MMBtu, and the Q1-2024 forecast also fell 62 cents from the previous month's estimates to $2.80/MMBtu.

The agency estimated that Henry Hub natural gas prices would average $2.56/MMBtu for full-year 2023 and $2.79/MMBtu in 2024, down from the previous month's estimates of $2.67/MMBtu in 2023 and $3.25/MMBtu in 2024.

Meanwhile, gas production saw gains in the second half of 2023.

"Increased US natural gas production in October and November 2023 contributed to the natural gas price decline in November," the outlook said, citing 105 Bcf/d of dry gas production in November, a record for any month.

"US dry natural gas production averaged almost 103 Bcf/d in 1H23 and has increased in most months during 2H23," the outlook said. "We forecast dry natural gas production to remain close to 105 Bcf/d for the rest of winter." .

The agency raised by 250 MMcf/d to 114.78 Bcf/d its total natural gas marketed production estimate for the US in Q4. The Q1-2024 production forecast fell by 130 MMcf/d to 114.46 Bcf/d, the EIA said.

Demand side

Turning to consumption, the agency estimated that gas use in residential and consumer sectors would average nearly 40 Bcf/d for the rest of the winter season, 2% below the five-year average. That outlook is mostly driven by EIA's weather forecast, which is close to normal for the rest of the winter, at 44 fewer heating-degree days than the five-year average, the EIA said.

The agency raised US natural gas consumption estimates by 230 MMcf/d to 93.28 Bcf/d for Q4, and by 240 MMcf/d to 104.22 Bcf/d for Q1-2024.