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Page added on March 25, 2015
EIA Forecasts 2015 Natural Gas Production
Weather – a major catalyst
The weather is the major driver of natural gas prices. By watching the weather, investors can get an idea of how prices will likely move in the short term. These prices in turn drive short-term movements in stock prices of natural gas producers such as Chesapeake Energy (CHK), QEP Resources (QEP), Devon Energy (DVN), and Southwest Energy (SWN).
These companies are components of the iShares Global Energy ETF (IXC) and make up ~2% of the fund. The above trends also affect the ETF. Let’s see how weather impacted prices last week.
Natural gas price movement
According to Commodity Weather Group LLC, natural gas prices started the week by declining 0.4%. This was amid reports of higher than normal temperatures in most of the lower 48 states through March 30. The Northeast, however, saw cooler temperatures.
Prices settled at $2.716 per MMBtu (million British thermal units) on Monday, March 16.
Prices advanced on Tuesday, increasing 5.12% to $2.855, as a result of a forecast of a cold blast hitting the Northeast.
Continuing the rally into Wednesday, prices increased on the back of colder weather forecasts. MDA Weather Services forecast that the weather might be colder than usual in New England and the mid-Atlantic through April 1.
Natural gas prices increased ~2.3% to $2.92 on Wednesday.
Following a bearish inventory report released by the EIA (U.S. Energy Information Administration), prices retreated by ~3.7% on Thursday to settle at $2.7813.
Prices continued to fall the next day after the Commodity Weather Group forecast milder temperatures in the central and western United States through April 3.
Prices fell ~1% to $2.786 on Friday.
Apart from weather, there’s one more factor that has and continues to affect natural gas prices. Continue to the next part of this series to find out more.
Production trends
The U.S. Energy Information Administration’s (or EIA) February Short-Term Energy Outlook (or STEO) projects total dry natural gas production to grow by ~5% to 73.9 Bcf (billion cubic feet) in 2015 and by ~2% to 75.38 Bcf in 2016. The EIA estimates dry natural gas production was 70.43 Bcf in 2014.
High production levels are bearish for natural gas prices. Weak prices hurt the margins of gas-producing companies such as Encana Corporation (ECA), EQT Corporation (EQT), WPX Energy (WPX), and EOG Resources (EOG). EQT, ECA, and EOG are part of the iShares Global Energy ETF (IXC) and make up ~3% of the fund.
Dry gas production
According to the EIA, dry gas production for the lower 48 states was at record highs this winter and has averaged 72 Bcf per day so far in March.
Dry gas production is up 8.7% compared to last year at the same time, according to the EIA.
Dry natural gas is the natural gas that remains after liquids such as propane and butane have been removed from the marketed natural gas. Dry natural gas is also known as consumer-grade natural gas.
A bullish EIA
The EIA continues to be bullish about natural gas production in 2015. Read Must-know: Why the EIA is bullish about natural gas production to find out more.
Continued production growth has thus set a grim scenario for natural gas prices. The EIA forecasts that monthly average prices will remain below $4 per MMBtu levels throughout most of 2015.
Natural gas inventories are governed by natural gas production and consumption trends. In the next part of this series, we’ll see if strong consumption trends could help push prices upward.
The EIA forecasts natural gas consumption
The U.S. Energy Information Administration (or EIA) forecasts that total natural gas consumption will average 75.7 Bcf/d (billion cubic feet per day) in 2015 and 76.2 Bcf/d in 2016, compared to an estimated 73.5 Bcf/d in 2014.
Total natural gas consumption is comparable to total marketed production. Marketed natural gas is the natural gas left intact before the withdrawal of liquids such as propane and butane. The removal of these liquids forms dry natural gas. You can read about dry natural gas production trends in the previous part.
The EIA expects total marketed production to average 78.39 Bcf/d in 2015 and 79.96 Bcf/d in 2016.
The increase in consumption will be a result of increased demand from industrial and electric power sectors.
Demand from the power sector is forecast to grow by 8.1% in 2015. Then it’s expected to grow by ~1.9% in 2016.
Industrial consumption is forecast to increase by 6.6% and 2.1% in 2015 and 2016, respectively. This is due to new industrial projects coming on line, predominantly in the fertilizer and chemical sectors.
Demand from residential and commercial sectors is projected to decline in 2015 and 2016.
Consumption trends this winter
Milder temperatures this winter have caused a decline in residential and commercial demand. As a result, the EIA forecasts that consumption will average 88.1 Bcf/d for the remainder of the heating season versus 90.9 Bcf/d during the same period in 2014.
Consumption trends last week
US natural gas consumption fell in all sectors last week. Total consumption fell ~16.9% compared to the prior week. Residential and commercial consumption declined ~31.1%. Consumption for power generation fell ~4.4%, and industrial consumption declined ~4.7%.
Production and consumption trends determine the fate of natural gas prices. Weather is the primary factor that determines consumption trends. Read Part 3 to see how the weather impacted prices last week.
Natural gas prices affect the profit margins of gas-weighted producers such as Devon Energy (DVN), QEP Resources (QEP), EQT Corporation (EQT), and Southwest Energy (SWN). All these companies are part of the iShares Global Energy ETF (IXC) and make up ~2% of the fund.
11 Comments on "EIA Forecasts 2015 Natural Gas Production"
Ted Wilson on Wed, 25th Mar 2015 8:46 pm
I hope the Northeast which uses Oil for heating will soon switch over to Natgas for heating, cooking and so on.
I read that many rail companies are planning to move their locomotives to CNG/LNG.
Texas is moving faster into Natgas for vehicles.
http://www.ngvglobal.com/cng-fuel-in-texas-outgrows-chicken-and-egg-conundrum-0317
rockman on Thu, 26th Mar 2015 6:37 am
“I hope the Northeast…will soon switch over to Natgas for heating, cooking and so on.” That would be good but it will require many tens of billions in local distribution infrastructure and home conversions. It might be a cost saving some years down the road but initially it would represent a huge increase in costs to the consumers.
GregT on Thu, 26th Mar 2015 10:15 am
Natural gas also happens to a finite resource, and a fossil fuel. Building out more Nat gas infrastructure will only make it run out faster, and add even more greenhouse gases into the environment.
Short term gain, for long term pain.
Nony on Thu, 26th Mar 2015 5:25 pm
NE won’t approve the pipelines to bring in the gas. Every summer they get all ecological. Every winter they bitch about fuel prices. They end up bringing in heating oil and LNG into Boston in the winter to get by. The funny thing is the Marcellus (NORTHEAST) natural gas is a dollar CHEAPER than Henry Hub (e.g Marcellus is in the 1s!). But Boston ends up having $15+ costs of NG in winter.
Oh well, New York is very happy to suck up that cheap Marcellus NG. 😉
Apneaman on Fri, 27th Mar 2015 1:44 am
Always trust the EIA kids. They are truthful, competent and accurate.
EIA Cuts Recoverable California Shale Estimates By 96%
http://www.businessinsider.com/eia-monterey-shale-2014-5
marmico on Fri, 27th Mar 2015 5:46 am
As always, trust Hubbert and descendents.
Hubbert projected that crude oil production would top out at ~12 Gb/a (current production is ~28 Gb/a) in about the year 2000. One Gb=one trillion barrels.
Hubbert projected that the globe should be out of oil a decade or two ago.
Read Hubbert’s 1956 opus magnus that nuclear energy will save the day.
Apneaman on Fri, 27th Mar 2015 6:45 am
What’s your opus magnum marmadork? Your prized collection of FRED charts?
Apneaman on Fri, 27th Mar 2015 7:02 am
marmadork. Do you like, print off all your favorite fantasy economy graphs and charts and cut them out and glue-stick them in a big happy fantasy economy treasure album that you can look at instead of reality?
Davy on Fri, 27th Mar 2015 7:07 am
I hear you Ape Man. Every single one of Marmi’s graphs are Freddy fluff. It gets old and is not a fair and balanced representation of reality. I put the Marmi in the same category as the Makster. Both are agendist with a mission. Both use one sided propaganda. Both never criticize their own side. That is not reality we know that here. There are no perfect worlds and no free lunches. Marmi and the Makster live in that world of denial and distortions and I am here to call them out on that shit.
marmico on Fri, 27th Mar 2015 7:39 am
Hey retard simian, piss off because you are nuttin’ but a copy and paste artiste.
In other words, an effing cheat late to the pong drinking party and two bits shy of a cerebral cortex.
Hubbert said that there were 1250 10 to the ninth power oil reserves to be produced. That cumulative sum has already been burnt by 2015 and the world is producing 2.4 times more than his “date of the cumulative” to burn more.
Ya see, Hubbert never wrote “peak oil” once in his opus magnum. But he loved uranium.
Apneaman on Fri, 27th Mar 2015 8:15 am
I’m a copy and paste artiste? Link us up with another one of your special numerology charts that explains the universe, marmadork. I bet the girls go crazy when you flex you data and math for them…how exciting and interesting.