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Short-Term Energy Outlook

Release Date: January 12, 2016  |  Next Release Date: February 9, 2016  |  Full Report    |   Text Only   |   All Tables   |   All Figures

Natural Gas

Forecast Henry Hub spot prices average $2.65/MMBtu in 2016 and $3.22/MMBtu in 2017, compared with an average of $2.63/MMBtu in 2015. Although annual average prices for 2015 and 2016 are similar, prices are forecast to rise through much of 2016, from prices that began the year near $2/MMBtu. Price increases reflect consumption growth, mainly from the industrial sector, that outpaces production growth in 2016.

EIA expects production growth will be relatively flat in 2016, partly in response to lower prices and declining rig activity. With higher prices in 2017, and as new consumption and more export capacity comes online, EIA projects production will pick up slightly.

Natural Gas Consumption

EIA's forecast of U.S. total natural gas consumption averages 76.6 billion cubic feet/day (Bcf/d) in 2016 and 77.2 Bcf/d in 2017, compared with 75.5 Bcf/d in 2015. Increases in industrial sector consumption drive total consumption growth in 2016 and 2017. Industrial sector consumption of natural gas increases by 3.5% in 2016 and by 2.5% in 2017, as new projects in the fertilizer and chemicals sectors come online. EIA expects a 0.1 Bcf/d (0.3%) decline in consumption of natural gas for power generation in 2016 and a 1.4% decrease in 2017. Natural gas consumption in the residential and commercial sectors is projected to increase in 2016 and 2017, reflecting slightly higher heating demand in those years.

Natural Gas Production and Trade

In September, total marketed production of natural gas hit a record high of 80.2 Bcf/d before declining the following month, according to EIA's survey data. EIA estimates that marketed natural gas production averaged 79.1 Bcf/d in 2015, an increase of 4.2 Bcf/d (5.7%) from 2014. EIA projects growth will slow to 0.7% in 2016, as low natural gas prices and declining rig activity begin to affect production. In 2017, however, forecast production growth increases to 1.8%, as forecast prices rise and more demand comes from industrial sectors and liquefied natural gas (LNG) exporters.

Although demand growth levels off, production remains high, which is expected to reduce demand for natural gas imports from Canada and to support growth in exports to Mexico. EIA expects natural gas exports to Mexico 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 start-up of Cheniere's Sabine Pass LNG liquefaction plant planned for early this year. EIA projects gross exports will average 1.4 Bcf/d in 2017, as Sabine Pass ramps up its capacity.

Natural Gas Inventories

On January 1, natural gas working inventories were 3,643 Bcf. Withdrawals during the heating season have been relatively low because of warmer-than normal weather. January 1 inventories were 535 Bcf (17%) above year-ago levels and 464 Bcf (15%) above the five-year (2011-15) average. Inventories are forecast to be 2,043 Bcf at the end of March 2016, which would be 421 Bcf above the five-year average.

Natural Gas Prices

The Henry Hub natural gas spot price averaged $1.93/MMBtu in December, a decrease of 16 cents/MMBtu from the November price. Warmer-than-normal temperatures in the first half of the heating season, record inventory levels, production growth, and forecasts for a warm winter contributed to spot prices remaining low. Monthly average Henry Hub spot prices are forecast to rise through 2016, but they remain less than $3/MMBtu until December. Forecast Henry Hub natural gas prices average $2.65/MMBtu in 2016 and $3.22/MMBtu in 2017.

Natural gas futures contracts for April 2016 delivery traded during the five-day period ending January 7 averaged $2.38/MMBtu. Current options and futures prices imply market participants place the lower and upper bounds for the 95% confidence interval for April 2016 contracts at $1.61/MMBtu and $3.52/MMBtu, respectively. In January 2015, the natural gas futures contract for April 2015 delivery averaged $2.88/MMBtu, and the corresponding lower and upper limits of the 95% confidence interval were $1.90/MMBtu and $4.36/MMBtu.

U.S. Natural Gas Summary
  2014 2015 2016 2017
Prices (dollars per thousand cubic feet)
Henry Hub Spot 4.52 2.71 2.73 3.32
Residential Sector 10.94 10.37 9.85 10.23
Commercial Sector 8.87 7.89 7.59 8.21
Industrial Sector 5.55 3.85 3.72 4.35
Supply (billion cubic feet per day)
Marketed Production 74.89 79.14 79.68 81.16
Dry Gas Production 70.49 74.45 74.82 76.21
Pipeline Imports 7.22 7.12 6.66 6.68
LNG Imports 0.16 0.24 0.15 0.12
Consumption (billion cubic feet per day)
Residential Sector 13.94 12.72 13.03 13.23
Commercial Sector 9.50 8.81 8.89 9.05
Industrial Sector 20.89 20.64 21.36 21.90
Electric Power Sector 22.32 26.49 26.40 26.04
Total Consumption 73.14 75.46 76.57 77.21
Primary Assumptions (percent change from previous year)
Heating Degree Days 1.9 -10.3 0.5 3.0
Cooling Degree Days -0.7 14.5 -5.6 1.7
Commercial Employment 2.2 2.5 1.9 1.4
Natural-gas-weighted Industrial Production 0.9 1.3 0.9 4.2

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