Continued production curtailments and rising electric power sector demand are expected to drive Henry Hub natural gas prices higher through the end of 2024 and lead to production growth in 2025, according to updated federal forecasts.
In the August release of its Short-Term Energy Outlook (STEO), the U.S. Energy Information Administration (EIA) projected the national benchmark’s natural gas spot price average at about $2.60/MMBtu for the final five months of the year. That would be up 53.0 cents from the July average, but below the average of $2.69 during the same period in 2023.
Record low Henry Hub natural gas spot prices in the first half of the year led producers to curtail production. With prices still foundering, EQT Corp., the largest natural gas producer in the United States, said recently it would continue curtailing production by about 0.5 Bcf/d through the second half of the year.
Lower 48 dry gas production inched up by 1 Bcf/d in July to an average of 103 Bcf/d, which is forecast to hold in August, a slight reduction from the prior year’s level. EIA researchers predicted output would climb to an average of 105 Bcf/d in 2025 as Henry Hub prices improve and natural gas demand for feed gas for LNG projects rises, with several liquefied natural gas facilities starting operations at the end of this year.
Conversely, following a “very hot July” across the country, EIA analysts said slightly milder weather in August could reduce natural gas consumption. The electric power sector consumed 13% (5 Bcf/d) more natural gas in July versus June because of a heat wave and a subsequent spike in natural gas-fired electricity generation.
“U.S. natural gas consumption in the electric power sector in July approached the record level set a year earlier, despite Hurricane Beryl leaving millions of homes and businesses in Texas without electricity for several days in early July,” EIA researchers said. While more natural gas is consumed regularly to generate electricity in Texas than any other state, “heat wave conditions in other States in early July, particularly those in the West Coast and in the Northeast, and increased use of natural gas-fired electricity generation offset any declines in natural gas consumption for electric power because of the hurricane.”
[Lower 48 Natural Gas Market Fundamentals: Join NGI's team of senior markets reporters to understand the supply and demand environment impacting natural gas prices, and where they may be heading into winter and beyond. Tune in to NGI’s Hub & Flow now.]
EIA forecast power sector demand would average 46 Bcf/d in August, down about 2% from July because of cooler weather. For the full year, consumption is forecast to average 90 Bcf/d, about 1% more than consumed in 2023. A milder weather outlook for next summer, paired with an increase in solar generation, could result in a 1% reduction in 2025 consumption as power sector demand declines.
Prices Tumble
While awaiting the supportive fundamentals predicted in the latest STEO, natural gas futures tumbled below the psychologically important $2 mark in a four-day retreat. The September New York Mercantile Exchange futures contract settled Monday down 2.5 cents at $1.942.
Cash prices Monday extended losses into a fourth trading session as the market struggled under the weight of a stout supply that undercut support from strong cooling demand. NGI’s Daily Spot National Avg. fell 1.0 cents to $1.665.
Adding downside pressure in Monday trade, EBW Analytics Group senior analyst Eli Rubin said, “Weather-related natural gas demand may slide 3.4 Bcf/d over the next five days as the heat wave crests and retreats.” That could potentially reduce natural gas demand and put downside pressure on natural gas futures.
Lower natural gas consumption for power generation could cause the pace of storage contraction to slow, feeding concerns that end-of-season inventories could exceed storage capacity limits.
The latest weekly government storage report showed an 18 Bcf injection into storage for the week ending July 26. While the increase was lighter than analyst expectations and the five-year average of 33 Bcf, it was 3 Bcf heavier than a year earlier. Inventories stood at 3,249 Bcf, supporting worries that end-of-season supply could exceed storage capacity limits.
