The woes for natural gas drillers continue, with forecasts for prices over the next few years showing a market stuck with oversupply.
“Any hope of higher peak winter prices likely hinges on sustained cold weather,” Bank of America Merrill Lynch wrote in a note last week. “Even then, we believe the upside in prices is limited.”
Rising production has more than offset the steady increase in demand from coal-to-gas switching. Inventories have climbed this year at a faster pace than in 2018, replenishing what had been depleted stocks. For the week ending on October 18, U.S. gas stocks stood at 3,606 billion cubic feet, or roughly 519 bcf higher than for the same week in 2018.
Unlike last year, when natural gas prices briefly spiked, the U.S. is heading into the winter season with ample supplies on hand. “A mild winter across the northern hemisphere or a worsening macro backdrop could be catastrophic for gas prices in all regions,” Bank of America said.
Due to a variety of factors, gas markets could remain in this subdued state for the next few years. By 2021, the U.S. could be sitting on 4.2 trillion cubic feet of natural gas in storage, according to Bank of America, which would be a record high. As a result, there is little room for prices to rise.
The bust in coal markets could also keep a lid on any price increase for natural gas. “With the implosion of Appalachian coal prices (down over 40% YoY), we estimate the soft cap on natural gas prices is currently just over $3/MMbtu, compared to $5/MMbtu a year ago,” Bank of America said. “As such, we lower our 1Q20 price forecast $0.5/MMbtu to $2.5/MMbtu.”Front futures (Dec.) 2.600 down 0.088, soon to be front January's 2.668 down 0.082
For the full year in 2020, the bank expects prices to average $2.35/MMBtu, down from its previous forecast of $2.60/MMBtu. In 2021, prices are not expected to rebound, barely rising to an average of $2.40/MMBtu, according to the investment bank....MORE
See also No. 14's "Natural Gas: Despite the Cold Snap Gas Was Still Injected INTO Storage (barely)"
And from NOAA's Climate Prediction Center:
This page displays seasonal climate anomalies from the NCEP coupled forecast system model version 2 (CFSv2). Forecasts are from initial conditions of the last 30 days, with 4 runs from each day. Forecast ensembles consist of 40 members from initial a period of 10 days. The 1st ensemble (E1) is from the earliest 10 days, the 2nd ensemble (E2) from the second earliest 10 days, and 3rd ensemble (E3) from the latest 10 days. Aomalies are with respect to 1999-2010 hindcast climatology. Temporal correlations between hindcasts and observations are used as skill mask for spatial anomalies. Standard deviation to normalize anomalies is the average standard deviation of individual hindcast members. For SSTs, anomalies with respect to 1982-2010 climatology are available here.
CAUTION: Seasonal climate anomalies shown here are not the official NCEP seasonal forecast outlooks. The NCEP seasonal forecast outlooks can be found at CPC website. Model based seasonal climate anomalies are one factor based on which NCEP seasonal forecast outlook is issued.
