Monday, February 3, 2020

NGI: "‘Gasmageddon’ Is Here, with NatGas Prices Averaging $1.99 in 2020, Say Analysts"

From Natural Gas Intelligence, January 29:
Natural gas has broken below the $2/MMBtu mark earlier than expected this year, and now the commodity faces a “gasmageddon” that could see prices stay below $2 on average through 2020.

That’s according to a new BofA Global Research Report, in which analysts reduced their forecast for 2020 natural gas prices to $1.99 on average. The firm dropped its expected natural gas price this year “to reflect the risk that there is little room for bearish errors from mild weather, high renewable generation or reduced liquefied natural gas (LNG) exports. In addition, we believe both Rockies coal and global gas provide a soft ceiling in the mid-$2s for Henry Hub this summer.”

The long-term outlook doesn’t appear much rosier. BofA’s 2020 forecast comes as the Energy Information Administration’s (EIA) updated Annual Energy Outlook 2020 shows natural gas prices stuck below the $4 mark out to 2050. The agency expects sub-$4 pricing to persist “because of an abundance of lower cost resources, primarily in tight oil plays in the Permian Basin. These lower cost resources allow higher production levels at lower prices during the projection period.”

Higher inventories heading into the 2019/20 winter meant the market “needed early and sustained cold weather” to even have a chance of sustaining higher prices, the BofA analysts said. And as the mild January temperatures have demonstrated, “Mother Nature has not been kind to natural gas prices” as of late.

Even with sustained cold, “we expected Appalachian coal prices, which are 40% lower year/year, to limit winter natural gas upside,” the BofA analysts said. “Once the November cold spell was over, the warm weather brought forward a ‘gasmageddon.’ We thought natural gas risked breaking the Jefferson in 2020, but did not expect it as soon as January.”

Despite an “impressive” 8 Bcf/d ramp-up in LNG exports over the past four years that has been bolstered further by about 2 Bcf/d of growth in exports to Mexico, these demand gains have been dwarfed by roughly 22 Bcf/d in production growth since January 2016, the BofA analysts said....

March futures $1.834 -0.007