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Short-Term Energy Outlook

Release Date: November 10, 2015  |  Next Release Date: December 8, 2015  |  Full Report    |   Text Only   |   All Tables   |   All Figures

Natural Gas

Working natural gas inventories for the week ending October 30 reached 3,929 Bcf, which matched the previous record high set on November 2, 2012, according to EIA's Weekly Natural Gas Storage Report. Although the storage injection season is commonly considered to end on October 31, builds often continue into November, and it is possible inventories could reach 4 trillion cubic feet in the coming weeks. Looking ahead to March 2016, EIA projects inventories will end the winter at 1,862 Bcf, reflecting a slightly lower-than-average overall winter drawdown based on projections for warmer-than-normal temperatures.

Strong inventory builds, continuing production growth, and expectations for warm winter temperatures contributed to natural gas prices reaching three-year lows, as Henry Hub spot prices fell below $2/MMBtu on October 30 for the first time since April 2012.

Based on lower expected residential natural gas prices than last winter and a forecast of warmer temperatures across much of the United States, EIA expects household heating expenditures for consumers using natural gas as their primary space heating fuel to average about 13% lower this winter compared with last winter.

Natural Gas Consumption

EIA's forecast of U.S. total natural gas consumption averages 76.3 Bcf/day (Bcf/d) in 2015 and 76.8 Bcf/d in 2016, compared with 73.1 Bcf/d in 2014. EIA projects natural gas consumption in the power sector to increase by 16.8% in 2015 and then to decrease by 1.2% in 2016. Natural gas spot prices, which are expected to remain below $3/MMBtu through mid-2016, support high consumption of natural gas for electricity generation in 2015 and 2016. Industrial sector consumption of natural gas remains flat in 2015 and increases by 4.2% in 2016, as new industrial projects, particularly in the fertilizer and chemicals sectors, come online in the next few months. Natural gas consumption in the residential and commercial sectors is projected to decline in both 2015 and 2016, which largely reflects lower heating demand this winter compared with last winter.

Natural Gas Production and Trade

In August, total marketed production hit a record high of 81.3 Bcf/d. EIA expects that marketed natural gas production will increase by 4.7 Bcf/d (6.3%) and by 1.6 Bcf/d (2.0%) in 2015 and 2016, respectively. Increases in drilling efficiency will continue to support growing natural gas production in the forecast despite low natural gas prices and declining rig activity. Most of the growth is expected to come from the Marcellus Shale, as the backlog of uncompleted wells is reduced and as new pipelines come online to deliver Marcellus natural gas to markets in the Northeast.

Increases in domestic natural gas production are expected to reduce demand for natural gas imports from Canada and to support growth in exports to Mexico. In August, natural gas net imports fell to 2.2 Bcf/d, the lowest monthly level since 1987. EIA expects natural gas exports to Mexico, particularly from the Eagle Ford Shale in South Texas, to increase because of growing demand from Mexico's electric power sector coupled with flat natural gas production in Mexico. EIA projects LNG gross exports will increase to an average of 0.7 Bcf/d in 2016, with the startup of Cheniere's Sabine Pass LNG liquefaction plant in the Lower 48 states planned for early 2016.

Natural Gas Inventories

On October 30, natural gas working inventories totaled 3,929 Bcf, 371 Bcf (10%) above the level at the same time in 2014 and 147 Bcf (4%) above the five-year average for that week. Forecast end-of-March 2016 inventories are 1,862 Bcf, which would be 240 Bcf above the five-year average.

Natural Gas Prices

The Henry Hub natural gas spot price averaged $2.34/MMBtu in October, a decrease of 32 cents/MMBtu from the September price. Warm weather at the end of October, strong inventory builds, continuing production growth, and expectations for a warm winter contributed to spot prices falling to three-year lows in recent weeks. Monthly average Henry Hub spot prices are forecast to remain lower than $3/MMBtu through June 2016, and lower than $3.50/MMBtu through the rest of the forecast. The projected Henry Hub natural gas price averages $2.69/MMBtu in 2015 and $3.00/MMBtu in 2016.

Natural gas futures contracts for February 2016 delivery traded during the five-day period ending November 5 averaged $2.50/MMBtu. Current options and futures prices imply market participants place the lower and upper bounds for the 95% confidence interval for February 2016 contracts at $1.60/MMBtu and $3.92/MMBtu, respectively. At this time in 2014, the natural gas futures contract for February 2015 delivery averaged $4.19/MMBtu, and the corresponding lower and upper limits of the 95% confidence interval were $2.76/MMBtu and $6.38/MMBtu, respectively.

U.S. Natural Gas Summary
  2013 2014 2015 2016
Prices (dollars per thousand cubic feet)
Henry Hub Spot 3.84 4.52 2.77 3.09
Residential Sector 10.29 10.94 10.24 10.09
Commercial Sector 8.07 8.87 7.93 7.96
Industrial Sector 4.64 5.55 3.89 4.08
Supply (billion cubic feet per day)
Marketed Production 70.03 74.89 79.61 81.20
Dry Gas Production 66.32 70.49 74.96 76.43
Pipeline Imports 7.63 7.22 7.07 6.48
LNG Imports 0.27 0.16 0.23 0.15
Consumption (billion cubic feet per day)
Residential Sector 13.42 13.94 13.28 13.26
Commercial Sector 9.03 9.50 9.14 8.97
Industrial Sector 20.34 20.89 20.93 21.81
Electric Power Sector 22.44 22.33 26.08 25.76
Total Consumption 71.66 73.15 76.29 76.79
Primary Assumptions (percent change from previous year)
Heating Degree Days 18.5 1.9 -5.4 -3.3
Cooling Degree Days -12.6 -0.6 12.6 -5.9
Commercial Employment 2.1 2.2 2.5 1.7
Natural-gas-weighted Industrial Production 3.1 0.9 1.3 1.9

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