Record US natural gas output to keep lid on prices: EIA

Record US natural gas production could keep prices for the fuel from rising despite strong demand from the power generation sector, the US Energy Information Administration (EIA) said today in its monthly Short-Term Energy Outlook.

Spot natural gas prices at the Henry Hub are near year-earlier levels despite low inventories and high demand for gas because of rising exports and summer heat, a sign or market confidence in production growth.

US benchmark prices in the week ended 6 August averaged $2.82/mmBtu, just 2pc higher than a year earlier. Prices there should average $2.96/mmBtu this year, down by 3¢/mmBtu from a year earlier and 3¢/mmBtu lower than the EIA's estimate last month.

The agency said it expects dry-gas output, which excludes volumes lost during processing and production, to average an all-time high of 81.1 Bcf/d (2.3bn m³/d) this year, up by 10pc from a year earlier. Output is forecast to rise again in 2019, averaging 84.1 Bcf/d.

Dry-gas output hit an estimated 81.8 Bcf/d in July, a record and an increase of 11pc from a year earlier. Gas production has climbed on improvements in efficiency and well design that are contributing to more output from each new well. Additional infrastructures is also allowing more gas to reach market and the development of oil-rich formations such as the Permian basin in west Texas and southeastern New Mexico has lifted the production of associated gas.

That surge in output helped mitigate estimated record consumption last month from the US power sector, the EIA said. US cooling demand last month averaged about 9pc higher than normal, the National Weather Service said.

Gas demand from the power sector is growing thanks to sustained low prices gas and the retirement of coal-fired plants. Gas is forecast to be the top US source fuel for power generation this year and next.

High demand in July stunted inventory growth. Injections in the four weeks ended 27 July totaled 156 Bcf, or about a third lower than the five-year-average build for those weeks. The increase left US stockpiles at 2.308 Tcf, a fifth lower than average, the EIA said.

Gas demand has also received a boost from year-over-year increases in gas pipeline exports and to exports to overseas markets in the form of LNG. Net pipeline exports this year should average 7 Bcf/d, up by 4pc from 2017, while LNG exports should hit 3 Bcf/d, up by 58pc, the EIA said.