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EIA revises gas production outlook lower

06 Jun 2017 20:25 (+01:00 GMT)
EIA revises gas production outlook lower

Houston, 6 June (Argus) — The US Energy Information Administration (EIA) revised its outlook for 2017 gas production lower following a drop in prices last month and forecasts indicating a slow start to summer.

Dry natural gas production, which excludes volumes lost during production and processing, should hit 73.3 Bcf/d (2.1bn m³/d) this year, up by about 1 Bcf/d from a year earlier, the EIA said today in its monthly Short-Term Energy Outlook. That forecast would partially reverse the year-over-year decline in 2016 of 1.85 Bcf/d but is about 770mn cf/d lower than the agency's May outlook.

US gas market participants are watching government data closely for signs that output is beginning to increase on higher prices and a significant ramp up in drilling. Spot prices at the Henry Hub in May averaged about $3.13/mmBtu, up by 65pc from a year earlier, on production declines and export growth.

The US gas rig count, an indicator of where production is headed, climbed to 182, an increase of 100 rigs from a year earlier, according to Baker Hughes.

Production has yet to follow suit. US dry -gas output, which excludes volumes lost during processing and production, declined in March to 71.6 Bcf/d, down by 2.4pc from a year earlier and 0.7pc lower than in February, according to the most recent EIA data. Dry-gas output has dropped from year-earlier levels in each of the 13 months ended in March.

In addition, the EIA lowered its 2017 outlook for Henry Hub spot prices marginally to an average of $3.16/mmBtu, down by 1¢/mmBtu from the May outlook. Spot prices dropped at the end of May to an average of about $3/mmBtu, down by about 5pc from the end of April.

Prices faced downward pressure form forecasts for mild weather and high gas inventories.

Henry Hub prices dropped below $3/mmBtu during the first week of June, a level that could encourage more widespread use of gas in the power generation sector and help deplete high inventories.

Gas inventories in the week ended 26 May rose to 2.525 Tcf, about 10pc higher than the five-year average.