U.S. on Track to Export More Natural Gas than Import

The EIA forecast bodes well for natural gas-weighted stocks such as Southwestern Energy, Chesapeake Energy, Gulfport Energy, Cabot Oil & Gas and Rice Energy.
By Claire Poole ,

The U.S. is on track to export more natural gas than it imports for the first time since 1957, the U.S. Energy Information Administration said Tuesday, which bodes well for natural gas-weighted stocks such as Southwestern Energy (SWN) - Get Report , Chesapeake Energy (CHK) - Get Report , Gulfport Energy (GPOR) - Get Report , Cabot Oil & Gas (COG) - Get Report and Rice Energy (RICE) .

Agency administrator Adam Sieminski said in a statement that it could happen in the second half of next year as more liquefied natural gas export capacity comes online. "Although U.S. natural gas exports are increasing, there are still abundant supplies to meet domestic demand as natural gas inventories are expected to be at a record high for the start of the upcoming winter heating season," he said.

Indeed, the EIA reports that natural gas working inventories amounted to 3.179 trillion cubic feet on July 1, 20% higher than a year ago and 23% higher than the previous five-year average for that week (the natural gas storage injection season typically runs from April through October). It projects that natural gas inventories will be 4.022 trillion cubic feet at the end of October, which would be the highest end-of-October level on record.

The EIA predicts natural gas production this year will hit 74.52 billion cubic feet, down slightly from the 74.64 billion it forecasted last month but still surpassing last year's record high of 74.06 billion. It thinks Henry Hub spot prices will average $2.36 per million British thermal units this year and $2.95 next year, versus an average of $2.63 last year.

On the crude oil side, the EIA cut its forecast for U.S. oil demand growth this year to 160,000 barrels per day from 220,000 but raised it for next year to 120,000 versus 60,000 previously. It also cut its crude production expectations slightly to 8.61 million barrels per day this year versus its previous estimate of 8.6 million, with an expectation of 8.2 million barrels for next year versus 8.19 million originally forecast.

The agency expects an average price of $44 per barrel this year, up from last month's forecast of $43, and $52 per barrel for next year, unchanged from last month's estimate.

Sieminski said that record gasoline demand will contribute to a nearly 1% increase in U.S. oil consumption this year, but India and China are expected to account for much of the growth in global oil consumption this year and next.

The EIA does expect China's oil output to fall by 150,000 barrels per day this year and by an additional 80,000 barrels per day in next year because of continued investment cuts and fewer new offshore developments, which could put some upward pressure on prices. He also said the United Kingdom's decision to leave the European Union, or Brexit, could lead to a drop in European oil consumption if there is a reduction in business investment and consumer spending, which could also help oil prices.

In terms of coal, Sieminski said the amount of U.S. electricity generated by the commodity continues to decline as power plant operators cut their use of it by more than 20% during the first half of this year in favor of more natural gas.

While more U.S electricity will still be generated by natural gas than coal next year, coal's share of electricity generation is expected to increase next year in response to rising natural prices, Sieminski said. He also expects the amount of electricity generated by hydro power to increase this year for the first time in five years.

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