North America gas long-term outlook highlights—H1 2016 Report

Commodity Market Report 01 June 2016

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Report summary

North American gas markets are dealing with the remnants of another mild winter, but fundamentals look to push prices up to $3.75/mmbtu in 2017 as demand accelerates just as oil and gas drilling have collapsed. After a subsequent ramp-up in drilling, we expect Henry Hub prices to hover around $3/mmbtu from 2018 to 2022, an amount which is stronger than our previous outlook. Northeast pipeline delays and lower liquids prices lead to a higher outlook for prices, and while demand looks to be robust, there are chinks in the armor in terms of a lower power burn and lower LNG liquefaction utilization. Better upstream economics and Northeast pipeline delays give an upside for WCSB production. In this short note, we provide our preliminary annualized prices for Henry Hub, Transco Leidy Line and Dominion South Point out to 2022 and outline the levers and risks. Our traditional long-term highlights update will follow soon.

Executive summary
- Introduction
- Supply-side drivers are bullish
  - Northeast pipeline delays limit the extent to which Marcellus and Utica gas can serve demand in other regions
  - Weaker liquids prices mean lower drilling and supply from oil and rich-gas plays
- While our demand outlook has weakened
  - Gas demand in the power sector is weaker structurally
  - LNG export facilities will not run at capacity
- Canada: brighter outlook on exports
  - Better upstream economics and Northeast pipeline delays mean upside for WCSB production