The Energy Department’s Energy Information Administration (EIA) said it expects U.S. natural gas spot prices to rise again in June and remain high through the rest of the year.
Natural gas spot prices at the Henry Hub benchmark in Louisiana averaged $8.14 per million British thermal units (MMBtu) in May. The hub price is expected to average $8.71/MMBtu through August.
EIA said that natural gas consumption by electric utilities has remained high even with the relatively high prices. It said that consumption for electric power generation will average 0.9 billion cubic feet per day (Bcf/d) more in 2022 than in 2021, even though Henry Hub prices are on track to be $3.49/MMBtu higher.
In the past, power plants have tended to burn more coal as natural gas prices rise. EIA said this fuel substitution has been “relatively limited” in recent months because of supply constraints in the coal market and historically low coal stockpiles.
EIA said it also expects liquefied natural gas (LNG) exports to remain high this summer, partly as a result of Russia’s invasion of Ukraine. So far this year, 75% of total U.S. LNG cargos have gone to Europe, up from 34% in 2021. High international natural gas prices may also lead to more U.S. LNG exports, EIA said.
The outlook did not include the likely market impact due to June 8 fire at a Texas liquefied natural gas plant. The Freeport LNG export facility was expected to remain closed for several weeks following the incident. The immediate impact was to reduce exports ease domestic natural gas prices, direct more gas into storage facilities and lift natural gas prices in Europe.
Roughly one-fifth of all overseas LNG shipments from the U.S. flowed through the terminal in May.
EIA said that U.S. production of dry natural gas is expected to increase this year, but not as much as demand. Production is forecast to average 96.5 Bcf/d, some 3.2% (or 3.0 Bcf/d) higher than the 2021 average.
Because demand for natural gas has outpaced production, natural gas inventories have remained low. Natural gas inventories started the 2022 summer storage injection season (April through October) 17% below the five-year (2017–21) average. EIA said that natural gas storage levels likely will be 9% below the five-year average at the end of October, which marks the start of the annual heating season.
EIA said that natural gas prices are expected to fall in early 2023 because of more domestic natural gas production, less LNG export and domestic natural gas demand growth, and more natural gas placed in storage.
