Higher gas prices seen lifting production: EIA

OREANDA-NEWS. July 13, 2016. The recent rally in natural gas prices should continue through the second half of 2016, lifting production, the US Energy Information Administration (EIA) said today.

Henry Hub spot prices in June averaged \\$2.52/mmBtu, up by a third from the previous month and the highest since September 2015, on high power sector demand, growing gas exports and slumping production.

The price increase could make drilling more lucrative for large gas producers that sidelined rigs when prompt-month prices collapsed to 17-year lows in March below \\$1.65/mmBtu. At the same time, higher prices could crimp demand by spurring electric utilities to dispatch more coal-fired power instead of gas.

Marketed natural gas output, which excludes volumes lost during production, will increase this year to 79.53 Bcf/d (2.3bn m?/d), up by about 1pc from the record high in 2015 of 78.77 Bcf/d, the EIA said today in its monthly Short-Term Energy Outlook.

US marketed output did decline in April to 78.8 Bcf/d, down by 300mn cf/d from March and from a year earlier. Estimated gas production for June averaged 79.1 Bcf/d, down by nearly 1 Bcf/d from February's record high, the EIA said.

But the US rig count, a bellwether for oil and gas development, has increased for five of the last six weeks, rising by 9pc over that period to 440, according to Baker Hughes. Gas-directed drilling represented about a fifth of the total rig count and has increased by 11pc since the end of May to 88 rigs.

Gas consumption has climbed this year as electric utilities turned to low-cost gas-fired power to meet customer demand. US consumption in 2016 should average 76.5 Bcf/d, an increase of about 2pc from 2015, the EIA said. Gas use for power, the largest consuming sector of the US market, is projected to rise this year by 4.9pc from a year earlier.

The increase in consumption this year has helped curb injections into gas storage, bringing inventories closer to average levels.

US stockpiles, which can ease concerns about spikes in demand or supply shortfalls, rose at the start of this month to 3.179 Tcf, 23pc higher than the five-year average. That gap has narrowed from 54pc since the 1 April start of the injection season, when gas stockpiles are replenished ahead of winter.

The EIA said it expects inventories to enter the 2016-17 winter on 31 October at an all-time high of 4.022 Tcf. That end-of-season estimate was revised lower by 139 Bcf from the agency's June outlook.