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Short-Term Energy Outlook

Release Date: January 13, 2015  |  Next Release Date: February 10, 2015  |  Full Report    |   Text Only   |   All Tables   |   All Figures

Natural Gas

Natural gas futures prices have fallen more than $1/MMBtu since mid-November, and on December 31, the February 2015 futures contract settled at $2.89/MMBtu, the lowest settlement price for a front-month contract since September 2012. Prices have rebounded somewhat since, but they remain at relatively low levels, reflecting abundant supplies. December 2014 was warmer than normal, which along with robust production contributed to lower-than-average storage withdrawals. The deficit of natural gas inventories to the previous five-year average narrowed to 67 Bcf at the end of December, from a 959-Bcf deficit at the end of March 2014.

Natural Gas Consumption

EIA projects that U.S. total natural gas consumption will increase to an average of 73.8 Bcf/d in 2015 and 74.8 Bcf/d in 2016, compared with an estimated 73.6 Bcf/d in 2014. Growth is largely driven by the industrial and electric power sectors, while residential and commercial consumption is projected to decline in 2015, then remain flat in 2016. Natural gas consumption in the power sector is expected to average 23.0 Bcf/d in 2015, a 3.2% increase compared with 2014, and it is expected to grow by 1.8% to 23.4 Bcf/d in 2016. Industrial sector consumption increases by 4.5% and 2.1% in 2015 and 2016, respectively, as new industrial projects come online, particularly in the fertilizer and chemicals sectors.

Natural Gas Production and Trade

EIA expects that growth in marketed natural gas production will continue through 2015 and 2016. This increase is the result of continuing strong growth in the Lower 48 states, which more than offsets the long-term trend of declining production in the Gulf of Mexico. As of October, the most recent month for which EIA data are available, dry natural gas production was 4.6 Bcf/d greater than it was in October 2013. Although natural gas prices have declined, and this month's STEO lowers the Henry Hub spot price forecast, EIA expects that increases in drilling efficiency and growth in oil production (although at a slower rate) will continue to support growing natural gas production in the coming years. Additionally, with most growth coming from the Marcellus Shale, a backlog of drilled but uncompleted wells will continue to support production growth as new pipeline infrastructure comes online in the Northeast.

Growing domestic natural gas production is expected to reduce demand for imports from Canada and spur 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. EIA projects that gross LNG exports will average 0.8 Bcf/d in 2016.

Natural Gas Inventories

Natural gas working inventories totaled 3,089 Bcf as of January 2, which is 250 Bcf greater than at the same time in 2014 and 67 Bcf lower than the previous five-year (2010-14) average. Following last year's extremely cold winter, inventories fell 1,000 Bcf below the five-year average in mid-April. After a strong injection season, inventories were 237 Bcf below the five-year average on November 7. EIA projects that end-of-March 2015 inventories will total 1,665 Bcf, which is 9 Bcf greater than the five-year (2010-14) average.

Natural Gas Prices

The Henry Hub natural gas spot price averaged $3.48/MMBtu in December, a decline of $0.64/MMBtu from November. EIA expects monthly average spot prices to remain less than $4/MMBtu until the fourth quarter of 2016. The projected Henry Hub natural gas price averages $3.44/MMBtu in 2015 and $3.86/MMBtu in 2016.

Natural gas futures prices for April 2015 delivery (for the five-day period ending January 8) averaged $2.88/MMBtu. Current options and futures prices imply that market participants place the lower and upper bounds for the 95% confidence interval for April 2015 contracts at $1.90/MMBtu and $4.36/MMBtu, respectively. At this time last year, the natural gas futures contract for April 2014 averaged $4.19/MMBtu and the corresponding lower and upper limits of the 95% confidence interval were $3.21/MMBtu and $5.46/MMBtu.

U.S. Natural Gas Summary
  2013 2014 2015 2016
Prices (dollars per thousand cubic feet)
Henry Hub Spot 3.84 4.52 3.55 3.98
Residential Sector 10.30 11.00 10.63 11.00
Commercial Sector 8.08 8.93 8.67 9.18
Industrial Sector 4.64 5.50 4.53 5.00
Supply (billion cubic feet per day)
Marketed Production 70.39 74.36 76.75 78.53
Dry Gas Production 66.67 70.11 72.26 73.94
Pipeline Imports 7.63 7.11 6.94 6.69
LNG Imports 0.27 0.17 0.17 0.15
Consumption (billion cubic feet per day)
Residential Sector 13.46 13.88 12.84 12.69
Commercial Sector 8.98 9.36 8.82 8.82
Industrial Sector 20.31 21.13 22.07 22.54
Electric Power Sector 22.34 22.24 22.96 23.38
Total Consumption 71.59 73.62 73.79 74.77
Primary Assumptions (percent change from previous year)
Heating Degree Days 18.5 2.0 -6.4 -0.6
Cooling Degree Days -12.6 -0.6 4.9 0.4
Commercial Employment 2.2 2.2 2.2 1.3
Natural-gas-weighted Industrial Production 1.8 2.3 2.7 3.5

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