Benchmark natural gas spot prices are poised to jump this summer and prove substantially stronger through the balance of 2024, according to updated federal forecasts.
In the July release of its Short-Term Energy Outlook (STEO), published Tuesday, the U.S. Energy Information Administration (EIA) projected a Henry Hub natural gas spot price average of $2.90/MMBtu for the final six months of 2024, up 80.0 cents from the first half of the year.
Prices floundered early this year amid mild weather and record production that topped 106 Bcf/d late last year and again in the first quarter. Producers scaled back in the spring, keeping output below the century mark, but benign shoulder season weather further restrained bullish sentiment.
While Lower 48 dry gas production rebounded back above 100 Bcf/d early this summer and is expected to climb to an average near 104 Bcf/d, EIA researchers predicted it would hold at that level for the second half of the year, keeping output far from record levels.
At the same time, EIA analysts said in the latest STEO, forecasts for robust heat through July and August raised expectations on the demand side of the equation. This could help to steadily curtail a surplus of natural gas inventories, they said. Gas in storage finished June nearly 19% above the five-year average.
“We expect less natural gas injected into storage than the five-year average this summer season because of relatively flat production” and “a seasonal increase in demand from the electric power sector,” EIA researchers said. “We forecast inventories will end the injection season in October with 6% more natural gas in storage than the five-year average.”
The U.S. electric power sector generated 5% more electricity in the first half of this year than in the comparable period of last year because of a hotter-than-normal start to summer and increasing power demand from the commercial sector. EIA estimated a 2% increase in U.S. generation in the second half of this year from the same period in 2023.
That latest STEO arrived on the heels of a recent natural gas price slump fostered by rising production estimates and hefty levels of storage, as well as the first hurricane of the season.
Henry Hub prompt month futures dropped over eight sessions spanning late June through early July. Cash prices also struggled. NGI’s Weekly Spot Gas National Avg. for the July 2-8 period, for example, plunged 54.0 cents to $1.500.
Lower 48 production climbed above 102 Bcf/d at its peak last week, according to Wood Mackenzie estimates. That put output well above the mid-90s Bcf low during the spring and fed speculation that production might keep pace with increased summer cooling demand. Lighter LNG consumption amid a spate of planned and unplanned maintenance events at liquefied natural gas export facilities compounded matters.
Money managers active in natural gas futures increased their short positions and amplified bearish sentiment. In the seven-day period ended July 2, money managers posted their largest collective weekly increase in speculative short positions since mid-February, according to analysts from Mobius Risk Group.
Relief Rally
However, both futures and cash markets mounted relief rallies early this week, posting gains Monday. Cash prices climbed again Tuesday.
“The market was really, really oversold,” NGI’s Patrick Rau, senior vice president of Research & Analysis, said.
The price advances developed in the wake of Hurricane Beryl making landfall in Texas. The storm caused widespread power outages and forced temporary pauses at LNG facilities. EIA’s latest estimates were finalized last week, prior to the storm reaching the Lower 48.
LNG exports averaged 11.1 Bcf/d both Monday and Tuesday, down nearly 2 Bcf/d from pre-storm levels. However, production also slipped notably, falling below 100 Bcf/d on Tuesday, down more than 3 Bcf/d from the highs last week, according to Wood Mackenzie.
Perhaps more important, the Mobius analysts noted Tuesday, is Mother Nature. “The next two weeks of Lower 48 temperatures are forecast to be top-three all-time warm, providing support for natural gas,” they said.
The shift in market views aligned with EIA’s latest Henry Hub price projections, which included an increasingly bullish outlook for next year. Multiple new export facilities are in the works and are slated to ramp up in 2025.
“As U.S. storage inventories draw down close to the five-year average by the end of injection season and with new demand from liquefied natural gas export projects coming online in late 2024 and mid-2025, we expect natural gas prices to rise to an average of $3.30 in 2025,” EIA analysts said. “Because of rising prices, we expect dry natural gas production to increase by 2% next year.”
