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Henry Hub spot gas price falls in Q4 amid surge in dry gas production

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U.S. dry gas production will rise to an all-time high of 91.63 billion cubic feet per day (bcfd) this year, the U.S. Energy Information Administration (EIA) said, forecasting a fall in Henry Hub gas prices by more than $1 per million British thermal units (MMBtu) to average $2.43/MMBtu in Q4-2019.

In 2020, Henry Hub prices are expected to recover to around $2.52/MMBtu as gas production is likely to grow much less. “The delayed effect of low prices in the second half of 2019 will reduce gas-directed drilling in 2020,” analysts said, forecasting production in 2020 will average 93.5 Bcf/d.

U.S. gas prices have fallen throughout most of this year because strong supply growth enabled gas inventories to build more than average during the April through October injection season. The EIA forecasts that gas storage levels will total 3,792 Bcf by the end of October, which is 2% above the five-year average and 17% above October 2018 levels.

Abundant supply of cheap, domestic gas continues to prompt electric power generations to convert their coal-fired units to run on natural gas. The EIA expects the share of US gas-fired generation to rise from 34% in 2018 to 37% this year and in 2020.

The share of coal generation, meanwhile, is forecast to fall to 22% in 2020, down from 28% last year. Coal mining is also in decline in the United States and the EIA expects total coal production will decrease to 159 million short tons (MMst) in the fourth quarter of 2019, a 17% drop year-on-year. 

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