2018-2019 Winter Outlook for Natural Gas
Executive Summary by Natural Gas Supply Association
The Natural Gas Supply Association’s (NGSA) 2018-2019 Winter Outlook for Natural Gas summarizes the association’s view of natural gas market conditions and fundamentals. The analysis covers the key points that can affect supply and demand dynamics, which ultimately impact all consumers of natural gas.
Based on publicly available information, NGSA forecasts whether natural gas prices will be subject to upward, downward or level pressure for the upcoming winter of 2018-2019 compared to the winter of 2017-2018, but the association does not forecast actual prices.
Based on an analysis of the weather, economy, consumer demand, production and storage, NGSA expects neutral price pressure on the natural gas market in winter 2018-2019 compared to last winter, when the average wholesale price for natural gas at the Henry Hub was $2.99 per MMBtu.
An expectation for growth in electric sector demand and increased exports are the most significant factors impacting this winter’s forecast for record natural gas demand, while slightly warmer temperatures and soaring production set the stage for supply to ably meet demand. Record production is expected to provide flexibility and optionality to compensate for below-average storage inventories at the beginning of the winter heating season.
Winter-over-winter increases in demand are forecasted in the electric and industrial sectors, as well as in exports. The biggest increase in demand is expected to come from the export sector in the form of LNG exports and pipeline exports to Mexico. Industrial demand will also contribute to the increase, the result of new natural gas-intensive industrial projects and expansions, as well as stronger industrial activity all around, with plants running at greater capacity than in recent years.
A glance at the natural gas market’s major pressure points for winter 2018-2019 reveals:
- WEATHER: Based on the National Oceanic and Atmospheric Administration (NOAA), Energy Ventures Analysis (EVA) predicts that the continental United States will on average experience a winter heating season that will be 1 percent warmer than last winter and 2 percent warmer than the 30-year average. Comparing winter-over-winter, total heating degree days (HDDs) are estimated to be very similar, leading to a projection that weather will place neutral pressure on prices.
- ECONOMY: Public data anticipates the economy will continue to strengthen, with forecasted GDP growth rate of 3.2 percent but not quite strong enough to exert significant pressure on natural gas prices compared to last winter’s 2.5 percent. The economy is expected to put neutral pressure on prices compared to last winter.
- DEMAND: When all sectors are combined, overall natural gas demand is projected to be more than 102 Bcf/day. Although that is a record amount of winter demand, it is only 3 percent more than the winter of 2017-2018, thus, customer demand is expected to place neutral pressure on natural gas prices. Individual customer sector forecasts show:
- New natural gas combined cycle power plants – representing 19 Gigawatts (GW) – to increase demand from the electric sector by less than 1 Bcf/day, with new demand somewhat offset by the forecast for warmer temperatures.
- Pipeline exports to Mexico to increase by 18 percent and net LNG exports to increase by 57 percent, compared to last winter.
- Slight industrial demand growth of 0.4 Bcf/day, due to the construction of major gas-intensive facilities and capacity expansions in the petro-chemical and fertilizer industries.
- STORAGE: The natural gas industry is anticipated to finish out the injection season with 3.3 trillion cubic feet (Tcf) of natural gas in storage, the lowest level at this time of year since 2005 and the shale era. Storage is forecasted to place upward pressure on prices.
- SUPPLY: EVA projects an enormous increase in total supply of more than 7 Bcf/day due to surging production. The forecasted 10 percent increase in winter-over- winter production is expected to result in downward pressure on natural gas prices. NGSA emphasized that winter supply, combined with natural gas imports from Canada, are ample to meet record winter demand.
All of these projected pressure points are interrelated and a deviation in one affects the other assumptions in this equation.