Fuel-switching will boost summer nat gas use

OREANDA-NEWS. June 08, 2015. Natural gas suppliers are projecting demand this summer to increase by 4 Bcf/d to hit a record 64.8 Bcf/d, driven largely by coal-to-gas fuel switching in the power sector and higher industrial demand.

Even with that 5.2pc year-on-year rise in demand, gas prices should face downward pressure this summer from an even larger 4.4 Bcf/d increase in gas production, the Natural Gas Supply Association said today in its summer 2015 outlook that covers the 1 April to 31 October cooling season.

The trade association, which represents large gas suppliers such as BP and Chevron, expects gains in drilling efficiency and new infrastructure will push US gas production to a record 75 Bcf/d this summer, even though rig counts have dropped since last year. The group said supply this summer will outpace last year's, putting downward pressure on prices.

Another factor adding to downward pressure on prices are storage inventories that were 70pc higher at the start of the cooling season, with 1,471 Bcf in storage. With more gas in storage, the trade group expects weekly injections will drop to 77 Bcf and put a total of 3,840 Bcf in storage by the end of the 2015 injection season, down from the 90 Bcf of weekly injections last year.

The retirement of about 20GW of coal generation since last summer should only cause about 0.5 Bcf/d in additional gas demand, the group said, as half of the retiring plants ran at capacity factors of less than 20pc. Power sector fuel switching driven by low gas prices should account for an additional 1.5 Bcf/d in demand, reaching a total of 26 Bcf/d.

Nymex gas for delivery this July is \\$2.63/mmBtu and rises to \\$2.77/mmBtu by October. Last summer the Henry Hub day-ahead price averaged \\$4.04/mmBtu in July 2014 and \\$3.78/mmBtu in October 2014, according to Argus data.

Industrial sector gas demand should increase by 0.9 Bcf/d to reach a total of 20.8 Bcf/d, while residential and commercial demand should remain constant at 11.4 Bcf/d. Canadian imports should stay constant this summer at 4.8 Bcf/d, with exports to Mexico dropping slightly to 3.2 Bcf/d, a reduction of 0.2 Bcf/d.

This summer should be about 3pc warmer than last summer, according to government forecasts, which the gas group expects will put a slight upward pressure on prices.