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EIA estimates new record for US natural gas output

Federal agency lowered Henry Hub spot price forecast as prices expected to average $2.44 per million British thermal units in fourth quarter

The US Energy Information Administration has estimated that natural gas production in August reached a new record high of 92.2 billion cubic feet per day, according to a monthly report from the agency.

The output is anticipated to be sufficient enough to meet expected demand and export levels at prices lower than previously forecast, the EIA said in its monthly short-term energy outlook.

As a result of recent price movements, the agency lowered its Henry Hub spot price forecast to an average of $2.55 per million British thermal units for 2020, or about $0.20 per million Btu lower than forecast in August.

For August, natural gas spot prices at Henry Hub averaged $2.22 per million Btu, a drop of $0.15 from July. Henry Hub spot prices increased in the second half of August, and EIA forecasts that prices will average $2.44 per million Btu in the fourth quarter of 2019.

"This summer, prices have declined amid rising natural gas production, despite high levels of both natural gas exports and consumption in the electricity generation sector," the EIA said.

US dry natural gas production is forecast to average 91.4 billion cubic feet per day in 2019, an increase of 8 billion cfd from 2018.

EIA: Permian leads US to new crude output record

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"EIA expects monthly average natural gas production to grow in late 2019 and then decline slightly during the first quarter of 2020 as the lagged effect of low prices in the second half of 2019 reduces natural gas-directed drilling," the agency said.

"However, EIA forecasts that growth will resume in the second quarter of 2020, and natural gas production in 2020 will average 93.2 Bcf/d."

The continued growth of liquefied natural gas exports, along with flattening production, will work to support natural gas prices throughout the short-term forecast, the EIA said.

LNG exports are estimated to rise and average 6.3 billion cfd in 2020, as exports hit about 3.9 billion cfd in August.

Meanwhile, the agency’s 2019 forecast for Brent crude oil prices also fell by $2 per barrel to $63 per barrel, a reduction from the EIA’s August outlook, as a result of "recent global crude oil price fluctuations and lower forecast global oil demand growth."

Overall, Brent spot prices averaged $59 per barrel in August. That price was down $5 per barrel from July, and $13 per barrel lower year-over-year. During the fourth quarter, the EIA has forecast prices to average around $60 per barrel.

For 2020, the EIA revised its outlook downward by $3 per barrel from its August estimate, as Brent crude prices are expected hit an annual average of $62 per barrel.

Pipeline bottlenecks in the Permian basin have continued to plague producers, although two pipelines coming online in mid-August reduced takeaway constraints to the US Gulf Coast, the EIA said, and led to increased crude prices in the Permian.

About 670,000 barrels per day of capacity was added via the Cactus II crude pipeline, while the EPIC Midstream pipeline added an estimated 400,000 bpd of capacity.

The price spread between crude benchmarks West Texas Intermediate and Brent had fallen to $3.60 per barrel on 19 August, marking the narrowest spread since March 2018, the EIA said.

The spread settled at $4.79 per barrel on 5 September, a decrease of $1.70 per barrel since 1 August.

"EIA expects the spread to widen slightly from the lows seen in mid-August, as regional markets rebalance and the spread settles closer to the new pipelines’ tariff from the Permian Basin to the Gulf Coast," the agency said.

US crude oil production is expected to average 12.2 million barrels per day in 2019, which is up by 1.2 million bpd year-over-year.

Production is anticipated to grow by 1 million bpd in 2020 to an annual average of 13.2 million bpd. The EIA noted that relatively flat crude oil price levels and slowing growth in well-level productivity is reflected in the slowing rate of crude oil production.

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