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Natural gas prices could continue to struggle early in the
2020/21 winter heating season, but IHS Markit sees a strong rebound
in 2021, according to its latest "North American Short-Term
Outlook," released on September 25.
"After a decline of $0.50/MMBtu summer to summer, the apparent
supply excess could send prices still lower in October," wrote
Matthew Palmer, senior director for IHS Markit. "But our latest
forecast is for Henry Hub prices to climb more than $1/MMBtu in
2021 as production output continues to drop through next
spring."
IHS Markit forecast the average Henry Hub price for 2020 at
under $2.00/MMBtu back in August 2019, as lower-48 production was
poised to keep storage inventory levels well above the five-year
average. While the stage for low prices was set last year, COVID-19
effectively acted as an accelerant in 2020, impacting demand and
speeding up production declines to pull the market back into
balance. Henry Hub is expected to rebound to the low $3.20s for
2021 and remain above $3.00 in 2022 and 2023.
As producers commit to working within their toughest capital
spending constraints in years, IHS Markit is forecasting a decline
in US gas production in both 2020 and 2021. "We do not expect
production to resume material growth until summer 2021 or to
approach the November 2019 record of 95.4 Bcf/d until late 2023,"
said Jack Weixel, senior director for IHS Markit.
The producing areas to watch are the Haynesville and
Appalachian, as well as any type of surge from the Permian if oil
prices rebound strongly.
On the demand side, power demand has been strong this year, but
the primary growth driver for 2021 and the extended forecast is LNG
feed gas demand. "We expect US LNG feed gas demand in 2023 to
double from the 2019 level, to 12.0 Bcf/d," added Palmer.
Assuming that domestic demand this winter paces the 10-year
average, prices could respond sharply, given lower levels of
production and additional LNG feed gas demand. Higher gas prices
could also result in higher levels of coal to gas switching as coal
inventories have risen over summer 2020. always, the weather is a
wildcard, the analysts said, as is COVID-19 this year, but "we
expect our baseline forecast for natural gas storage inventories to
move into deficit to the five year average to be realized over the
course of winter 2020/21," said Weixel.
Jack Weixel is a senior director on the Gas, Power, and
Energy Futures team at IHS Markit. Matthew Palmer is senior director, Global Gas at IHS
Markit. Anusha DeSilva is associate director, North American
natural gas, at IHS Markit.
Kevin Adler, author of the article, is an editorial
director, natural gas at IHS Markit.
