The Energy Information Administration’s most recent Short-Term Energy Outlook points to an uptick in natural gas demand that could help take some of the slack out of the market, but other forecasts suggest that the EIA’s production expectations are too conservative. If that is the case, the supply overhang could persist for some time, absent a commensurate rise in consumption.
EIA projections for total US natural gas supply, as outlined in yesterday’s STEO, show growth of .49 bcf/d this year, to 70.5 bcf/d, and a drop of .36 bcf/d in 2014, to 70.14 bcf/d. This year’s figure represents a modest increase over last month’s forecasts: 70.44 bcf/d for 2013 and a 70.08 bcf/d for 2014.
Meanwhile, the EIA has also upped its consumption forecasts for 2013, to 70 bcf/d from 69.91 bcf/d, and for 2014, to 69.42 bcf/d from 69.31 bcf/d. It anticipates increases coming from the residential and commercial sectors. “The net result of the EIA changes suggests the supply-demand balance is tighter (less supply than demand through these revisions) by 150 MMcf/d in ’13 and 200 MMcf/d in ’14,” said investment bank Simmons & Co in a note to clients this morning. While modest in size, any move towards a tighter supply-demand balance could also indicate a move towards higher natural gas prices.
But investment bank Raymond James expects the increase in US output to far exceed EIA expectations, which show a year-over-year rise of .82 bcf/d for marketed production in 2013 and .43 bcf/d in 2014. The bank, by comparison, projects output will rise by 1.3 bcf/d this year, and by 2.4 bcf/d next year. “We would point out that there are now a few forecasters more in line with our thinking – i.e., Bentek is currently forecasting ~2.4 Bcf/d of growth in 2014,” the bank said in its Energy Stat of the Week report.
An aggressive shift away from natural gas-targeted drilling has failed to stem the tide of rising production for multiple reasons. These include better operational efficiency, viable economics for dry gas production in the Marcellus shale and substantial volumes of associated gas production from oil and liquids drilling, particularly in the Eagle Ford shale, according to Raymond James.
“The shocking revelation (to many that aren’t doing the bottoms-up modeling) is that U.S. gas supply is still growing despite the collapse in gas drilling,” Raymond James said.
Raymond James’ message is clear: US natural gas supply will continue to grow robustly, and the long-awaited rollover in domestic oversupply is here to stay for some time. The bank sees US gas supply rising by another 2.6 bcf/d in 2015 and 2.2 bcf/d in 2016, reaching 79 bcf/d by 2020.
