Bank of America Merrill Lynch has lowered the average 2015 US nat gas price forecast to $2.85/MMBtu, from $3.90 prior. BofAML expects front-month NYMEX prices to average $3.90/MMBtu in 2016.“Although we see a strong rise in gas demand for power generation as coal units are retired and the power industry is becoming more dependent on natural gas, the demand increase will easily be met by the expected rise in supply,” BofAML said.

The rebalancing has come on a step-level shift in supply as Northeast output soared on the back of new pipeline capacity. Annual production growth rose from 1.9 to 5.7 bcf/d through 2014, bringing total US gas output to a record 70 bcf/d (+48% in last decade).

Associated gas supply in places like the Eagle Ford are expected to fall as producers cut capex in oil plays. Northeast production growth will decline into year-end in response to the 50% drop in NGL prices and the extremely weak local basis market.

By the end of 2015, the combination of sequentially falling production and strong structural demand growth will likely eliminate the slack in gas balances.

“For 2016, we expect a yearly decline in production of 1.3 bcf/d, the first one in 10 years. This rebalancing could set the market up for a meaningful price recovery and we expect front-month NYMEX prices to average $3.90/MMBtu in 2016,” the Bank said.
Source: Bank of America Merrill Lynch