A colder winter and higher demand are projected to lead to higher natural gas prices
Energize Weekly, October 16, 2024
Colder weather this coming winter leading to increased demand for natural gas for heating plus continued exports of liquified natural gas (LNG) will put “upward pressure” on natural gas prices, according to a Natural Gas Supply Association (NGSA) market outlook.
Those rising commodity prices could lead to fuel switching in the utility sector away from natural gas to coal – representing a sharp swing from this past summer when natural gas-fired electricity generation set a record.
On Aug. 2, 2024, 7.1 million megawatt-hours of natural gas-fired electricity was generated, 6.8 percent more than the previous record set in 2023. Nine out of the 10 days with the most U.S. natural gas-fired electricity generation on record occurred in the summer of 2024.
“Reasons for increased U.S. natural gas-fired electricity generation included hotter weather, low natural gas prices, the addition of new combined-cycle generating capacity and increased generator capacity factors,” according to the U.S. Energy Information Administration.
At the same time, coal-fired generation also gained in the summer of 2024. “The need for fossil generation increased this summer due to record electric demand and underperforming renewable generation,” the NGSA analysis said.
Despite the summer demand, natural gas commodity prices remained low thanks to last winter being the warmest recorded in 130 years. That resulted in lower-than-average withdrawals from storage, resulting in “a significantly high amount of natural gas” heading into the summer injection season, the NGSA said.
Spot gas prices at the Henry Hub last summer were $2.51 a million British thermal units, their lowest since the 2019-2020 winter.
The hot summer and correspondingly high demand for natural gas from the power sector enabled storage refills to level out some of the surplus, although storage levels remain 6 percent above the 5-year average at 3.9 trillion cubic feet going into the winter season.
Nevertheless, the November-March period is forecasted to be 7 percent colder than last year, resulting in an approximately 14 percent increase in residential and commercial demand. Industrial demand is also expected to rise about 7 percent, the group said.
“With rising demand expected to place upward pressure on natural gas prices, power demand could decrease compared to last winter’s numbers and less temporary economically-motivated switching from gas-to-coal,” the market outlook said.
LNG exports to European and Asian markets are also expected to grow “driven by competitively-priced U.S. LNG availability,” the NGSA said. Exports will also be bolstered by more capacity coming online at the Plaquemines LNG facility, in Louisiana, in the fourth quarter of 2024.
“Global geopolitical tensions are driving bid support for European and Asian natural gas prices, which translates to the ongoing need for U.S. LNG,” the market report said.
All these demands are expected to put sustained pressure on commodity gas prices, according to Enverus Intelligence Research.
“Amplified gas price instability is a sure bet in the next few years as the market tries to time supply growth and LNG export capacity with the required midstream infrastructure needed to move the molecules,” said Jason Feit, an Enverus adviser, said in a statement.
