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Short-Term Energy Outlook

Release Date: March 10, 2015  |  Next Release Date: April 7, 2015  |  Full Report    |   Text Only   |   All Tables   |   All Figures

Natural Gas

December 2014 marketed natural gas production hit a record high of 78.8 Bcf/d, according to EIA's Natural Gas Monthly. The increase in production occurred despite declining prices and falling rig counts, and likely reflects increases in rig efficiency. For 2014 as a whole, natural gas production increased 6.1%, which was the strongest growth since 2011. Preliminary data indicate temporary declines in production in early 2015, largely attributable to freeze-offs during a few cold weeks in January and February. Based on increases in rig efficiency and December 2014 data, this month's STEO raises the outlook for production by 1 Bcf/d from last month's outlook for both 2015 and 2016.

Natural Gas Consumption

EIA projects that U.S. total natural gas consumption will average 75.7 Bcf/d in 2015 and 76.2 Bcf/d in 2016, compared with an estimated 73.5 Bcf/d in 2014. Growth is largely driven by demand in the industrial and electric power sectors, while residential and commercial consumption are projected to decline in 2015 and 2016. EIA projects natural gas consumption in the power sector to grow by 8.1% in 2015 and by 1.9% in 2016. Industrial sector consumption increases by 6.6% and 2.1% in 2015 and 2016, respectively, as new industrial projects come online, particularly in the fertilizer and chemicals sectors, and industrial consumers take advantage of low natural gas prices.

Natural Gas Production and Trade

EIA expects that marketed natural gas production will increase by 3.7 Bcf/d (5.0%) and 1.6 Bcf/d (2.0%) in 2015 and 2016, respectively, reflecting continuing production growth in the Lower 48 states, which more than offsets the long-term declining production in the Gulf of Mexico. Although natural gas prices have fallen dramatically in recent months, EIA expects that increases in drilling efficiency and growth in oil production (albeit at a slower rate) will continue to support growing natural gas production in the forecast. With most growth expected to come from the Marcellus Shale, a backlog of drilled but uncompleted wells will continue to support production growth, as new pipelines come online 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. EIA expects 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 Mexican natural gas production.

Liquefied natural gas (LNG) imports have fallen over the past five years because higher prices in Europe and Asia are more attractive to LNG exporters than the relatively low prices in the United States. Forecast LNG gross imports average 0.2 Bcf/d in both 2015 and 2016. EIA projects that LNG gross exports will increase from an average of 0.04 Bcf/d in 2014 to almost 0.8 Bcf/d in 2016.

Natural Gas Inventories

On February 27, natural gas working inventories totaled 1,710 Bcf, 492 Bcf (40%) above the level at the same time in 2014 and 143 Bcf (8%) below the previous five-year (2010-14) average for the week. Following the extremely cold weather last winter, inventories were 1,000 Bcf below the five-year average in mid-April 2014. After strong builds over the summer and weak draws during the early winter, natural gas working inventories briefly surpassed the five-year average in mid-February. However, recent cold temperatures have contributed to inventory levels falling back below the five-year average. EIA projects that end-of-March 2015 inventories will total 1,587 Bcf, close to the five-year average and 730 Bcf more than at the end of last March.

Natural Gas Prices

The Henry Hub natural gas spot price averaged $2.87/MMBtu in February, a decline of $0.12/MMBtu from January. EIA expects monthly average spot prices to remain less than $3/MMBtu through May, and less than $4/MMBtu through the remainder of the forecast. The projected Henry Hub natural gas price averages $3.07/MMBtu in 2015 and $3.48/MMBtu in 2016.

Natural gas futures contracts for June 2015 delivery traded during the five-day period ending March 5 averaged $2.83/MMBtu. Current options and futures prices imply that market participants place the lower and upper bounds for the 95% confidence interval for June 2015 contracts at $1.92/MMBtu and $4.18/MMBtu, respectively. At this time last year, the natural gas futures contract for June 2014 delivery averaged $4.55/MMBtu and the corresponding lower and upper limits of the 95% confidence interval were $3.51/MMBtu and $5.90/MMBtu.

U.S. Natural Gas Summary
  2013 2014 2015 2016
Prices (dollars per thousand cubic feet)
Henry Hub Spot 3.84 4.52 3.17 3.58
Residential Sector 10.30 10.94 10.24 10.64
Commercial Sector 8.08 8.87 8.36 8.74
Industrial Sector 4.64 5.53 4.24 4.60
Supply (billion cubic feet per day)
Marketed Production 70.39 74.68 78.39 79.96
Dry Gas Production 66.67 70.43 73.90 75.38
Pipeline Imports 7.63 7.22 6.88 6.69
LNG Imports 0.27 0.16 0.20 0.15
Consumption (billion cubic feet per day)
Residential Sector 13.46 13.89 13.36 12.81
Commercial Sector 8.98 9.48 8.98 8.88
Industrial Sector 20.31 20.98 22.36 22.83
Electric Power Sector 22.44 22.33 24.13 24.59
Total Consumption 71.69 73.48 75.74 76.21
Primary Assumptions (percent change from previous year)
Heating Degree Days 18.5 1.9 -3.7 -3.8
Cooling Degree Days -12.6 -0.4 4.7 0.6
Commercial Employment 2.1 2.2 2.4 1.8
Natural-gas-weighted Industrial Production 1.8 2.2 1.8 3.3

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