American Oil and Gas Reporter - December 2016 - 44

SpecialReport: Natural Gas White Papers

Fuel Stocks Ready For Winter Demand
WASHINGTON-The U.S Energy Information Administration estimates that
year-to-year marketed U.S. natural gas production is down in 2016 for the first time
since 2005, averaging 77.3 billion cubic
feet a day, or 1.4 Bcf/d less than in 2015.
However, EIA says it expects 2017 production to expand by 2.9 Bcf/d to average
80.2 Bcf/d as a result of demand growth,
stronger commodity prices, increased drilling,
and infrastructure build-out to connect production to demand centers.
According to the agency, growing domestic consumption, higher pipeline exports to Mexico and increasing liquefied
natural gas exports to overseas markets
will help boost Henry Hub spot prices
from a 2016 average of $2.50 an MMBtu
to $3.12/MMBtu in 2017, with the high
end of the forecast at $4.84/MMBtu. Figure 1 shows actual and projected Henry
Hub prices from January 2015 through

July 2017. The confidence intervals are
derived from options market information
for the five trading days ending Nov. 3.
Looking at the upcoming winter, the
National Oceanic and Atmospheric Administration is forecasting a return to
close-to-normal temperatures. NOAA's
national forecast calls for much colder
temperatures than last winter, when an El
Niño weather pattern warmed temperatures
15 percent above the 10-year national average. On a regional basis, NOAA says it
anticipates much colder temperatures than
last winter east of the Rocky Mountains,
with the Northeast and Midwest 17 percent
colder, and the South 18 percent colder.
In the West, forecast temperatures are
similar to last winter.
Even with the long-range forecast calling for cold, EIA points out that autumn
brought unusually warm temperatures,
putting downward pressure on gas demand

FIGURE 1
Historical and Projected Henry Hub Natural Gas Prices
8
Historical spot price
EIA forecast price
NYMEX futures price
95% NYMEX futures upper conﬁdence interval
95% NYMEX futures lower conﬁdence interval

$/MMBtu

6
5
4
3
2
1
0
Jan 2015

Jul 2015

Jan 2016

Jul 2016

Jan 2017

Jul 2017

Note: Conﬁdence intervals based on options market for ﬁve trading days ending Nov.3.

Source: All ﬁgures courtesy of U.S. Energy Information Administration

FIGURE 2
Historical and Projected Winter Heating Degree Days
1,000

Population-weighted

900
800
700
600

2013-14
2014-15
2015-16
2016-17

500
400
300
200
100
0
October

November

December

January

February

Note: EIA calculations based on NOAA's 14-16 month outlook. Horizontal lines = 10-year average.

44 THE AMERICAN OIL & GAS REPORTER

March

through mid-November. In fact, heating
degree days in October were 38 percent
below the 10-year average. However, reduced fall demand did not translate into
additional storage builds in working
natural gas inventories, which were already
at historic levels. In fact, the pace of October injections slipped 8 Bcf/d compared
with previous years, which EIA says
could reflect a decline in natural gas production during October.
"EIA is forecasting 21 percent of U.S.
natural gas consumption in December, January and February will be drawn from inventories, slightly higher than the fiveyear average," EIA explains. "Rather than
signaling the need for inventory builds to
meet winter heating needs, the higher November-to-January futures price spread this
year likely reflects the difference between
warmer-than-normal fall temperatures and
expectations for colder temperatures this
winter compared with last winter."
Natural Gas
Figure 2 shows projected winter 201617 heating degree days based on NOAA
forecast data and referenced to recent
heating seasons. The horizontal lines indicate each month's prior 10-year average.
With nearly half of all U.S. households
heated primarily with natural gas, EIA's
Winter Fuels Outlook predicts that residential gas prices will average 11 percent
more than last winter at $10.37 an Mcf,
which would be the highest since the
winter of 2010-11.
Consumption is forecast to be 10 percent higher than last winter, given a return
to more normal temperatures, and EIA
says it expects Henry Hub spot prices to
average $3.26 an Mcf, which would be
53 percent higher than last winter. Should
actual winter temperatures turn out 10
percent colder that NOAA's forecast, EIA
says consumption and prices would be
19 percent and 10 percent higher than
last winter, respectively.
On Nov. 11, EIA estimated working
gas in storage at an all-time high of 4.047
trillion cubic feet. Stocks were 51 Bcf
higher than at the same time in 2015,
and 216 Bcf above the five-year average
of 3.831 Tcf. Last winter's warm weather
left natural gas inventories at record highs
at the start of the refill season in April.
Partly as a result of record summertime
natural gas consumption in power gener-

American Oil and Gas Reporter - December 2016

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