EIA Sees Calmer Gas Markets After Winter Storm
The US Energy Information Administration (EIA) said March 9 natural gas markets should be calmer for much of 2021 after a February that saw benchmark prices at their highest since 2014.
Winter Storm Uri, the polar vortex weather event that ravaged gas and power markets in the Midcontinent – and especially Texas – in mid-February, pushed the February average price for natural gas at Henry Hub to $5.35/mn Btu, nearly double the January average of $2.71/mn Btu and the highest nominal monthly average spot price since February 2014, the EIA said in its Short-Term Energy Outlook (Steo).
“Higher prices in February reflect increased demand for natural gas because of much colder-than-normal temperatures throughout most of the country,” the EIA said. “Price effects were amplified because the rise in demand occurred amid a drop in natural gas production due to well freeze-offs.”
Spot prices at some Midcontinent hubs spiked to more than $1,000/mn Btu during the storm, while spot prices in Texas reached as high as $600/mn Btu.
Henry Hub spot prices are expected to average $2.88/mn Btu in Q2 2021 as the market returns to normal, but will be higher for the year, at $3.14/mn Btu against $2.03/mn Btu in 2020, reflecting the impact of the February price surge. Continued growth in LNG exports and relatively flat production will push the 2022 average to $3.16/mn Btu, the EIA forecasts.
US dry natural gas production plunged to just 87.8bn ft3/day in February from 92.4bn ft3/day in December 2020, largely because of well freeze-offs during Winter Storm Uri. For all of 2021, the EIA is forecasting 91.4bn ft3/day of production.
Domestic gas consumption will slip 0.9% this year, to 82.5bn ft3/day, the Steo says, largely because of reduced gas use in power generation reflecting higher natural gas prices. But consumption in February reached a record 111.8bn ft3/day as cold temperatures impacted much of the US and pushed demand sharply higher for heating and power generation.
LNG exports in February were also impacted by Uri, averaging just 7.5bn ft3/day for the month, down 23% from January, reflecting the suspension of piloting services and lower feedstock availability during the worst of the storm.