Updated March 2018
After a year of low natural gas prices in 2016, in which the Henry Hub price averaged US$2.41/MMBtu, the lowest recorded price since 1999, prices started to recover in late 2016 as declining natural gas production and increasing winter heating demand normalized storage levels in the United States.
The Henry Hub price in the first quarter of 2017 averaged US$3.28/MMBtu compared with US$2.08/MMBtu in the first quarter of 2016. The price averaged US$3.54/MMBtu in January before falling to US$3.35/MMBtu in February, the second-warmest February on record, reducing the demand for natural gas for heating and resulting in the first-ever storage injection of natural gas in February in the United States. Natural gas use for electricity generation was 15 per cent lower in the first quarter of 2017 than in the first quarter of 2016 due to higher natural gas prices, which prompted a switch from natural gas-fired generation to coal-fired generation, and to higher hydro output along the Pacific coast. However, an increase in natural gas exports and a decrease in production helped to strengthen prices in this quarter. Natural gas exports were 52 per cent higher and production was 3 per cent lower in the first quarter of 2017 relative to that of 2016. Liquefied natural gas (LNG) exports reached record levels in early 2017 due to a colder than normal winter in Asia and increased pipeline exports to Canada and Mexico, which were 34 and 22 per cent higher in the first quarter of 2017, respectively, compared with the first quarter in 2016. In addition, construction of Zone 3 of the Rockies Express Pipeline LLC (REX) was also completed in January, connecting the ANR pipeline system to the Dawn Hub in eastern Canada.
The Henry Hub price fell in the second quarter of 2017, averaging US$3.13/MMBtu, as production increased in response to higher natural gas prices at the start of the year. At the end of March, storage was within the five-year average (2012–2016) and was 17 per cent lower than in 2016. The Henry Hub price started to recover towards the end of the quarter due to warmer weather, which increased natural gas demand and resulted in smaller than normal injections to storage. In addition, the price was strengthened by pipeline exports, which increased by 4 per cent in June.
The Henry Hub price fell again in the third quarter, averaging US$2.96/MMBtu. This decline was due to low gas-fired electricity generation in the summer, despite high summer cooling demand. Even with summer heat waves that led to record-high electricity demand, gas-fired generation in 2017 was 9 per cent lower between July and September compared with the same period in 2016. Higher natural gas prices in summer 2017 than in summer 2016 and relatively unchanged coal prices contributed to lower natural gas demand. At the end of August, Hurricane Harvey [Tableau] reduced Gulf Coast natural gas production; however, the price response was muted due to a corresponding reduction in demand for gas-fired electricity generation in Texas. In addition, pipeline closures in Texas reduced exports to Mexico, and LNG tankers were unable to access the Sabine Pass LNG terminal, increasing storage levels.
In the fourth quarter, the Henry Hub price averaged an estimated US$2.99/MMBtu. The price fell in early October due to forecasts for mild weather in October, which moderated demand and prompted unusually large storage injections before the start of the heating season. The price was strong in early November but then fell due to above-normal temperatures in late November and early December. However, the price recovered in late December as unusually cold weather set in throughout the eastern United States for the remainder of the year.
As shown in Figure 1.6 [Tableau], the Henry Hub price averaged an estimated US$3.09/MMBtu in 2017 and is forecast to increase to US$3.26/MMBtu in 2018, US$4.00/MMBtu in 2019, and US$4.50/MMBtu in 2020. The price is anticipated to gradually increase over the remainder of the forecast, reaching US$5.41/MMBtu in 2027, with a range of US$3.64/MMBtu to US$7.18/MMBtu. In the short term, the price is anticipated to strengthen due to a significant increase in natural gas exports. Over the entire forecast period, the price is projected to strengthen because of both increases in natural gas exports and slowing growth in U.S. domestic gas production.
In addition to LNG exports, natural gas pipeline exports are projected to increase over the forecast period, expanding further into eastern Canada and Mexican markets, strengthening the Henry Hub price. U.S. natural gas exports to eastern Canada have been increasing since 2000, with both the REX and Rover pipelines bringing additional volumes of natural gas to the Dawn Hub. In addition, construction is underway on the Nexus Gas Transmission pipeline, which will carry U.S. natural gas to eastern Canada, in direct competition with Canadian gas producers for the largest Canadian market. Since 2009, U.S. natural gas exports to Mexico have also been increasing and will continue to increase through 2020 as pipeline projects are completed. Natural gas exports to Mexico have been steadily increasing since 2010 due to declines in domestic production in Mexico, increases in natural gas demand in Mexico for electricity generation, and expansions of natural gas pipeline networks. Concurrent with increasing natural gas exports over the forecast period, the EIA forecasts that natural gas production growth in the United States will start to moderate, slowing to 1 per cent annual growth by the end of the forecast period.
The high and low price scenarios represent the near-term and long-term volatility of the Henry Hub price. The high price scenario forecasts that U.S. natural gas production will start to slow to 1 per cent annual growth early in the forecast period, exports will increase, and fuel switching from coal to natural gas will increase. The low price scenario forecasts that natural gas production will be higher than expected, North American and global markets will be oversupplied, and no outlet will exist for LNG exports.
For information on how the Henry Hub price is derived, see the Methodology section.