By Katabella Roberts
Natural gas prices are expected to be “volatile” across the United States as the winter heating season begins amid uncertainty about the weather, according to the U.S. Energy Information Administration (EIA).
In its November Short-Term Energy Outlook (STEO), published Tuesday, the EIA estimates that U.S. natural gas storage levels had risen to within 3 percent of the previous five-year average at the end of October.
But extreme cold weather in February also led to lower-than-average natural gas storage levels across the nation throughout the summer.
“Mild weather has limited natural gas consumption and helped bring our storage levels closer to average in recent weeks, but cold winter weather could continue to put upward pressure on prices,” said EIA Acting Administrator Steve Nalley. “Winter temperatures will be the key driver of natural gas demand, inventories, and ultimately prices.”
While natural gas prices remain relatively high, EIA notes that the U.S. electric power sector continues to use significant amounts of natural gas for generation, while U.S. natural gas exports of liquefied natural gas (LNG) are estimated to average 9.8 billion cubic feet per day (Bcf/d) in October, 37 percent more than they were in October 2020, meaning they are essentially operating at capacity.
EIA says U.S. exports of natural gas will most likely remain close to capacity for the rest of this year and in 2022 in an effort to meet global demand.
In October, the natural gas spot price at Henry Hub—an indicator of natural gas supply and demand—averaged $5.51 per million British thermal units (MMBtu), which was up from the September average of $5.16/MMBtu and also up from an average of $3.25/MMBtu in the first half of 2021.
EIA noted that the rising price of natural gas seen across the Unites States in recent months reflect the lower than average inventory levels, which are currently under the five-year average (between 2016-2020).
Despite high prices, demand for natural gas for electric power generation has remained relatively high, which, along with strong global demand for U.S. liquefied natural gas, has “limited downward natural gas price pressures,” EIA said.
EIA expects the Henry Hub spot price will average $5.53/MMBtu from November through February before dropping down throughout 2022, averaging $3.93/MMBtu for the year amid rising U.S. natural gas production and slowing growth in LNG exports.
The agency said that it expects inventory draws in the U.S. to be similar to the five-year average this winter, and that this, along with rising U.S. natural gas exports and relatively flat production through March, will keep natural gas prices near recent levels before they eventually drop down in price.
However, the agency expects natural gas prices to remain “volatile” over the upcoming months with uncertain winter temperatures remaining a key driver of demand and prices.
It comes after Eversource Energy earlier this month warned that customers could see natural gas heating prices rise 15 percent, costing an average of $30 a month more compared with last year.
In the company’s third-quarter 2021 earnings call, Philip J. Lembo, executive vice president and chief financial officer, cited rising prices post the COVID-19 pandemic, supply issues, and forecasts of a cold winter, as reasons for the price increase.
Elsewhere in its October Short-Term Energy Outlook (STEO), the EIA said it expects Brent prices will average $82 per barrel from October to December and $72 per barrel in 2022. Brent crude oil spot prices averaged $84 per barrel in October, up $9/b from September and up $43/b from October 2020.
EIA notes that crude oil prices have risen over the past year as result of steady draws on global oil inventories, which averaged 1.9 million barrels per day during the first three quarters of 2021. EIA said it expects to see an increase in production from the Organization of the Petroleum Exporting Countries, U.S. tight oil, and other non-OPEC countries in 2022 which will “outpace slowing growth in global oil consumption and contribute to Brent prices declining from current levels to an annual average of $72/b.”
The agency also estimates that 18 percent more coal will be used to generate electricity in the United States in 2021 than in 2020, breaking a long-standing trend, while coal exports will increase 29 percent this year.