In its 2020 Short Term Energy Outlook, the U.S. Energy Information Agency projects average U.S. natural gas prices will be 9% lower in 2020, but will likely return to current levels the following year.
To blame, the agency says, are improved drilling efficiency and cost reductions, higher associated gas production from oil-directed rigs and increased takeaway pipeline capacity from the Appalachian and Permian regions. Production growth will likely outpace a rise in domestic demand and exports, EIA projects, leaving a negative impact on pricing.
The agency said it expects the natural gas spot price for the U.S. benchmark Henry Hub will average $2.33 per MMBtu in 2020—roughly 24 cents lower than the 2019 average of $2.57/MMBtu.
In 2021, however, EIA expects upward pricing pressure from declining growth in production to drive natural gas prices back up by 9%.
According to the agency, natural gas consumption in the U.S. industrial sector is projected continue to grow in 2020, rising 4.6%, driven by new methanol plants using natural gas as feedstock that are scheduled to come online in this year. However, EIA expects industrial sector consumption to flatten the following year because of higher industrial sector natural gas prices.
Also, EIA is projecting the new MARPOL Convention regulation lowering the maximum sulfur content of marine fuel oil used in oceangoing vessels from 3.5% of weight to 0.5% will encourage global refiners to increase refinery runs and maximize upgrading of high-sulfur heavy fuel oil into low-sulfur distillate fuel to create compliant bunker fuels.
EIA forecasts that U.S. refinery runs will rise by 3% from 2019 to a record level of 17.5 million b/d in 2020, resulting in refinery utilization rates that average 93% in 2020. EIA expects one of the most significant effects of the regulation will be on diesel wholesale margins, which will rise from an average of 43 cents per gallon in 2019 to a forecast peak of 53 cents/gal in March 2020 and an annual average of 50 cents per gallon in 2020. EIA expects diesel margins to decline to 49 cents per gallon in 2021.