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Lower Natural Gas Production Predicted for 2020

In its May 2020 Short-Term Energy Outlook, the US Energy Information Administration (EIA) forecast US-marketed natural gas production to decrease by 5% in 2020. Production is expected to average 94.3 Bcf/D in 2020, down from 99.2 Bcf/D in 2019.

Before the economic downturn, the agency expected natural gas production would flatten in 2020 as natural gas production growth outpaced demand growth. The US set annual natural gas production records in 2018 and 2019, largely because of the increase in drilling in shale and tight-oil formations. This increase in production led to higher volumes of natural gas in storage and a decrease in natural gas prices.

With declines in crude oil and natural gas prices in March and April, producers have announced plans to further reduce capital spending and drilling levels, as well as curtail production from some existing wells. Most of the expected decline is from associated gas in oil-directed plays, particularly in the Permian Basin.

Natural gas prices were already decreasing earlier this year because of the previous year’s record production level and a warmer-than-normal winter. US benchmark Henry Hub prices fell to an average of $1.74/MMBtu in April 2020, the lowest monthly average since March 2016.

EIA expects prices to increase in Q3 2020, driven by an increase in industrial demand as business activity resumes. EIA expects that the natural gas spot price for the Henry Hub will average $2.16 in 2020, about 41 cents lower than the 2019 average of $2.57. Projected natural gas prices rise to an average of $2.95 in 2021 because of upward pricing pressure from declining growth in natural gas production.

 

Lower Natural Gas Production Predicted for 2020

Lynnmarie P. Flowers, Technology Editor

01 July 2020

Volume: 72 | Issue: 7

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