Coming off a record-setting summer driven by new highs in power generation demand, domestic natural gas prices are seen strengthening through the remainder of 2023 and into 2024, according to updated modeling from the U.S. Energy Information Administration (EIA).
In its latest Short-Term Energy Outlook (STEO), EIA modeled an average Henry Hub spot price of $2.55/MMBtu for the third quarter, with prices set to rise to $2.95 in the fourth quarter. Both figures were roughly in line with month-earlier projections. Looking ahead to early next year, EIA called for an average spot price for the benchmark of $3.32 in 1Q2024.
Mexico’s imports of U.S. gas via pipeline also have been strong, averaging 6.16 Bcf/d year to date, up 273 MMcf/d versus the same period last year, according to Wood Mackenzie data. Pipeline gas from the United States has accounted for about 70% of Mexico’s total supply this year, underscoring the relevance of U.S. prices for the Mexican market.
Recent data from NGI’s Forward Look suggests the market is pricing in a bit of upside versus EIA’s forecast. According to Forward Look, Henry Hub fixed prices were averaging $2.986 for the fourth quarter and $3.535 for the first quarter of next year.
EIA expects full-year 2023 prices to average $2.58 at the national benchmark, down sharply from $6.42 in 2022. The agency’s updated projections pointed to an average of $3.24 for full-year 2024.
Domestic natural gas consumption is poised to set a monthly record in September at an average of 80.5 Bcf/d, a 5% year/year increase, according to the latest STEO.
“Based on our estimates, September would be the third straight month of record natural gas consumption in the United States, after records in July (86.5 Bcf/d) and in August (86.7 Bcf/d),” researchers said.
After accounting for an increase in summer consumption, EIA said it now expects total U.S. natural gas consumption to average 89.7 Bcf/d for full-year 2023, a 1% increase over 2022 levels. Consumption of 88.6 Bcf/d in 2022 set the previous record high, according to EIA.
Unsurprisingly, the record high domestic consumption parallels new highs in the amount of natural gas used by U.S. electricity generators.
The updated STEO projected 40.1 Bcf/d for electric power consumption on average for September, a monthly record and a 2.7 Bcf/d increase over September 2022, the previous monthly record.
“Natural gas consumption for electric power also set monthly records of 47.3 Bcf/d in both July and August, based on STEO estimates,” researchers said.
EIA called for natural gas power sector consumption to average 35.3 Bcf/d for full-year 2023, up 6%, or 2.1 Bcf/d, over the record levels observed in the year-earlier period.
Blistering summer temperatures, set against a backdrop of coal-fired retirements and increased natural gas-fired generating capacity, have fueled the rise of natural gas power burns, the agency observed.
Consumption “has set records the past two summers as hot weather has increased demand for air conditioning across the country, particularly in largely populated areas such as Texas, Florida and Southern California,” EIA said. “The portion of electricity generation that comes from natural gas has also risen the past two summers, reflecting a decline in coal-fired electricity generation resulting from the retirement of coal-fired power plants.”
An average natural gas price for the electric power sector of $2.65 for June through August further made the fuel more economically competitive versus coal, the agency added.
Still, competing renewable generating capacity should curb natural gas power sector consumption next year, according to the updated STEO. The EIA modeled a year/year decline of around 4% in 2024.
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