EIA: Natural gas prices set to rise in 2017, 2018 - Smart Energy Decisions

Commercial, Industrial, Power Prices  -  January 23, 2017

EIA: Natural gas prices set to rise in 2017, 2018

Image source: U.S. Energy Information Administration, Short-Term Energy Outlook

The U.S. Energy Information Agency expects natural gas prices to be higher in 2017 and 2018 to be higher than they were in 2016. 

The higher prices in 2017 and 2018, according to the EIA's January 2017 Short-Term Energy Outlook, are expected to reflect natural gas consumption and exports exceeding supply and imports, leading to lower average inventory levels. The agency expects the Henry Hub natural gas spot price to average $3.55 per million British thermal units, or MMBtu, in 2017 and $3.73/MMBtu in 2018, both higher than the 2016 average of $2.51/MMBtu.

In a Jan. 23 blog post, the agency noted that in 2016, the annual average Henry Hub natural gas price was the lowest since 1999 as a result of a very mild winter that left natural gas inventories at a record high for the end of March. However, high natural gas use for electricity generation during the summer and declining production contributed to Henry Hub natural gas prices rising in the third quarter of 2016. That increase was followed by cold weather across much of the northern United States in mid-December, which led to an increase in demand that again resulted in lower inventories. As a result, Henry Hub spot prices increased to a monthly average of $3.59/MMBtu in December, the first month in which prices averaged above $3.00/MMBtu since December 2014.

The EIA wrote: 

EIA expects natural gas consumption to be higher in 2017 and 2018 than in 2016, based on a return to more typical winter temperatures. In 2017, use of natural gas for electric power generation is expected to decline from the record level in 2016 because of higher natural gas prices. Natural gas-fired power generation is forecast to rise in 2018 because of overall growth in electricity generation, but it is expected to remain below the 2016 level.

The confidence interval range for natural gas prices is a market-derived range that reflects trading in New York Mercantile Exchange futures markets and is not directly based on EIA's supply and demand estimates. The values for the upper confidence interval increase during the winter months compared with the rest of the year, which reflects the higher probability of an increase in natural gas consumption for space heating use as a result of colder weather. By February 2018, the 95% confidence interval ranges from $1.78/MMBtu to $7.22/MMBtu.

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