US gas production will not return to Q4’21 levels until the final quarter of 2022, the US Energy Information Administration (EIA) suggests in its latest Short-Term Energy Outlook (STEO) published this week. Despite revising gas production levels lower and expectations of strong gas demand throughout the summer, the EIA has kept its Henry Hub price forecast unchanged from the May STEO.
The EIA made several significant downward revisions in its June STEO, with gas production and LNG exports expected to be lower than May’s forecast.
Notably, the EIA said it expects gas production increases to take “several months to emerge”. For Q3’22 production is expected to hit 96.9 Bcf/d down from 97.17 Bcf/d previously forecast in May.
US gas production stood at 95.5 Bcf/d during the week ending 1 June, according to the EIA’s latest weekly gas report.
Production has been slowly increasing after dipping at times during the winter amid well freeze offs, however increases have been capped by labour shortages and frack sand shortages in key basins such as the Permian.
Production is not expected to return to Q4’21 levels of 97 Bcf/d until the final quarter of this year – three months later than the EIA had previously forecast. US production is expected to hit 98.94 Bcf/d in Q4’22, down from the 99.14 Bcf/d forecast in May.
Looking further ahead, the EIA lowered its gas production forecast by 0.19 Bcf/d from June to December 2023, with production expected to top 102 Bcf/d in November next year.
As for LNG exports, the EIA expects exports to average 11.7 Bcf/d in Q2 and Q3. For 2022, exports will average 11.9 Bcf/d, a 22% increase on 2021, according to the June STEO.
In May the EIA said exports would average 11.74 Bcf in Q3, rising to 12.78 Bcf/d in Q4.
The latest forecast may be considered bearish considering US LNG plants have been taking over 12 Bcf of feed gas since mid-May, with the figure hitting 13 Bcf/d on 21 May.
The EIA noted that demand in Europe is driving strong exports from the US, with Europe accounting for 74% of total US LNG exports over the first four months of 2022.
“We forecast LNG exports will average 12.6 Bcf/d in 2023. Expected growth in LNG exports in 2023 results from LNG export terminals that came online in mid-2022 being operational for the whole year in 2023,” the June STEO states.
Despite sluggish production growth, strong LNG exports and expectations of strong domestic gas demand – which is limiting gas storage injections – the EIA has kept its Henry Hub forecast unchanged from the May STEO.
“We expect Henry Hub natural gas prices to remain high throughout the summer, averaging $8.69/MMBtu in 3Q22, because opportunities for natural gas-to-coal switching for power generation have been limited by rail capacity for fuel delivery, low coal stocks in the electric power sector, reduced coal mining capacity, and rising generation form renewable sources,” the latest report states.
“Additionally, we expect U.S. natural gas production increases will take several months to emerge, and continued high levels of LNG exports will contribute to high natural gas demand.”
As for Q4, Henry Hub is expected to dip to USD 8.48/MMBtu, according to the latest STEO. The EIA expects Henry Hub to average USD 7.43/MMBtu during Q1’23 and then fall to USD 3.88/MMBtu in Q2 of next year.
In comparison, the January and February-dated Henry Hub contracts are currently trading in the USD 9/MMBtu range, with the March contract settling at 7.9/MMBtu on Tuesday. Henry Hub is currently priced at over USD 5/MMBtu for April, May and June 2023. - ET
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