American Oil and Gas Reporter - December 2022 - 42

SpecialReport: Natural Gas Outlook
The Outlook shows that producers are
rising to the challenge of strong winter
demand for natural gas at home while
meeting the critical needs of an undersupplied
global market. European and
Asian markets have repeatedly hit seasonal
records for regional natural gas prices, a
trend that began before Russia's invasion
of Ukraine earlier this year, accelerated
after the invasion and then improved
somewhat with the arrival of more U.S.
LNG cargoes in Europe. Both the U.S.
and global gas markets have evolved considerably
since NGSA issued its first annual
heating season outlook ahead of the
2001-02 winter. During only the past 10
years, domestic gas production has increased
by 40%, U.S. consumption has
grown 22%, and total U.S. natural gas
exports are up more than threefold since
Gulf Coast terminals accounting for about
13 Bcf/d of LNG export capacity have
entered service since 2016.
Domestic gas production averaged 4.7
Bcf/d higher last winter than it had the
previous winter, with most of that growth
coming in the form of Permian associated
gas and Haynesville dry gas. This winter,
production is forecast to jump another
3.6 Bcf/d to average a record 98.2 Bcf/d,
again driven by gains in Haynesville dry
gas and Permian associated gas.
Overall, U.S. natural gas markets are
FIGURE 1
Supply and Demand Factors
Supply (Bcf/d)
U.S. Dry Production
Net Canadian Imports
LNG Imports
TOTAL SUPPLY
Demand (Bcf/d)
Power Burn
Industrial
Residential/Commercial
Net Mexico Exports
LNG Exports
Other
TOTAL DEMAND
Average Withdrawal (Bcf/d)
Total Withdrawal (Bcf)
HDDs
42 THE AMERICAN OIL & GAS REPORTER
2022-23 Winter
Winter 2022-23 Forecast Summary
2021-22 Winter
98.2
5.6
0.2
103.9
27.0
25.3
37.7
5.9
13.4
8.8
118.1
14.2
2,133
3,437
94.5
5.6
0.1
100.2
28.7
24.8
37.2
5.5
12.2
7.6
116.0
15.8
2,254
3,327
Difference
vs last winter
3.6
(0.0)
0.1
3.7
(-1.7)
0.5
0.5
0.4
1.2
1.2
2.1
(-1.6)
(-121.6)
110.0
Difference
vs last three winters
4.9
0.3
0.0
5.3
(-1.2)
0.9
0.7
0.5
3.1
1.3
5.4
0.1
101.6
97.3
expected to remain tight assuming normal
winter conditions. Low coal stockpiles
and skyrocketing coal prices have countered
higher natural gas prices in power
generation, ultimately limiting switching
between coal and natural gas. Despite
higher gas prices, high electric demand
supported gas-fired generation last summer.
However, given regional gas forward
market prices, coal-fired and oil-fired
generation will play a critical role this
heating season.
Solid LNG demand overseas will also
keep U.S. LNG terminals operating at or
above nameplate capacity. Beyond that,
U.S. LNG exporting capacity should remain
steady around 13.5 Bcf/d once
Freeport LNG swings back into service
as expected in January.
Five Key Areas
The analysis examines publicly available
data relating to five key areas: economic
indicators, weather, demand, natural
gas production and storage. Although
each of these potential pressure points is
identified separately, all of them are interrelated.
Any significant deviation of a
single pressure point is likely to affect
the other assumptions in the supply and
demand equation. The analysis provides
an indication of whether market pressures
on natural gas prices will be upward,
downward or neutral compared with the
previous winter.
This year's Winter Outlook forecasts
upward price pressure from three of the
five areas (Figure 1):
· Weather, with long-range forecasts
trending 3.3% colder than last winter;
· Overall demand, with domestic gas
demand anticipated to grow 2% yearover-year
to average 118.1 Bcf/d from
the start of November through the end of
March, led by both pipeline and LNG
exports as well as the industrial sector;
and
· Storage, with U.S. inventories forecast
to enter the winter 9% below the
five-year average and considerably below
the same point last winter.
On the other hand, downward pressure
is expected from two areas:
· Supply-side growth resulting in a
4% increase in domestic gas production,
driven by output gains primarily in the
Haynesville Shale and associated gas
from Permian Basin tight oil plays (Figure
2); and
· An economic slowdown, with gross
domestic product growth forecast to decline
by 0.05% this winter.
In addition to these key areas, other
factors are weighing in on expectations
for the market this winter. For example,
2023 will be a banner year for changes
American Oil and Gas Reporter - December 2022

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