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Short-Term Energy Outlook

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

Natural Gas

Henry Hub spot prices rose in June and averaged $2.59 per million British thermal units (MMBtu) for the month, the highest monthly average since September 2015. The increase in prices comes as production has declined and as demand for natural gas to fuel electricity generation has increased. April 2016 marketed natural gas production was 78.8 billion cubic feet per day (Bcf/d), a 0.3 Bcf/d decline from its level in March 2016 and in April 2015, according to the most recent Natural Gas Monthly. Recent preliminary data from PointLogic indicate production may have declined further since then. EIA projects increases in the natural gas price will continue through 2016, and will contribute to a reversal in production declines in the second half of the year.

Natural Gas Consumption

EIA's forecast of U.S. total natural gas consumption averages 76.5 Bcf/d in 2016 and 77.7 Bcf/d in 2017, compared with 75.3 Bcf/d in 2015. In 2016, increases in total natural gas consumption are mainly attributed to increases in electric power sector use. Forecast electric power sector use of natural gas increases by 4.9% in 2016, then declines by 1.4% in 2017, as rising natural gas prices contribute to increasing coal use for electricity generation. Forecast industrial sector consumption of natural gas increases by 2.7% in 2016 and by 1.5% in 2017, as new fertilizer and chemical projects come online.

Natural Gas Production and Trade

EIA's estimated natural gas production in June averaged 79.1 Bcf/d, which is down almost 1.0 Bcf/d from the record-high daily average production in February 2016. EIA expects production to rise through 2016 and 2017 in response to forecast price increases and increases in liquefied natural gas (LNG) exports. Overall, EIA expects natural gas production to rise by 1.0% in 2016 and by 2.4% in 2017.

Natural gas pipeline exports to Mexico have risen this year, and EIA expects that growth to continue because of growing demand from Mexico's electric power sector and because of flat natural gas production in Mexico. Gross pipeline exports are expected to increase by 0.7 Bcf/d in 2016 before falling by 0.2 Bcf/d in 2017 to an average of 5.3 Bcf/d.

EIA projects LNG gross exports will rise to an average of 0.5 Bcf/d in 2016, with the startup of Cheniere's Sabine Pass LNG liquefaction plant in Louisiana, which sent out its first cargo in February 2016. EIA projects gross LNG exports will average 1.3 Bcf/d in 2017, as Sabine Pass ramps up capacity.

With expected growth in gross exports, net imports of natural gas decline from 2.6 Bcf/d in 2015 to 0.2 Bcf/d in 2017, and the United States is expected to become a net exporter of natural gas during the second half of 2017.

Natural Gas Inventories

Natural gas inventories in March ended at 2,494 Bcf, the highest end-of-withdrawal-season level on record. During May and June, injections have been somewhat lower than the previous five-year (2011-15) average. As of July 1, natural gas inventories were at 3,179 Bcf. Even with lower-than-average storage injections, EIA forecasts natural gas inventories to be 4,022 Bcf at the end of October 2016, which would be the highest level on record for that time of year.

Natural Gas Prices

The Henry Hub natural gas spot price averaged $2.59/MMBtu in June, up 67 cents/MMBtu from the average price in May. EIA expects natural gas prices to gradually rise throughout the forecast period but remain lower than they were last summer. Forecast Henry Hub natural gas prices average $2.36/MMBtu in 2016 and $2.95/MMBtu in 2017.

Natural gas futures contracts for October 2016 delivery that were traded during the five-day period ending July 7 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 October 2016 contracts at $2.00/MMBtu and $4.14/MMBtu, respectively. In early July 2015, the natural gas futures contract for October 2015 delivery averaged $2.85/MMBtu, and the corresponding lower and upper limits of the 95% confidence interval were $1.92/MMBtu and $4.24/MMBtu.

U.S. Natural Gas Summary
  2014 2015 2016 2017
Prices (dollars per thousand cubic feet)
Henry Hub Spot 4.52 2.71 2.43 3.04
Residential Sector 10.94 10.36 9.89 10.57
Commercial Sector 8.87 7.88 7.28 8.05
Industrial Sector 5.55 3.84 3.42 4.09
Supply (billion cubic feet per day)
Marketed Production 74.89 78.77 79.53 81.44
Dry Gas Production 70.49 74.06 74.52 76.28
Pipeline Imports 7.22 7.20 7.02 6.75
LNG Imports 0.16 0.25 0.20 0.12
Consumption (billion cubic feet per day)
Residential Sector 13.94 12.65 12.12 12.78
Commercial Sector 9.50 8.79 8.61 9.09
Industrial Sector 20.89 20.56 21.12 21.43
Electric Power Sector 22.32 26.50 27.80 27.41
Total Consumption 73.14 75.27 76.51 77.73
Primary Assumptions (percent change from previous year)
Heating Degree Days 1.9 -10.2 -2.6 4.0
Cooling Degree Days -0.7 14.7 -2.3 -3.1
Commercial Employment 2.1 2.5 2.2 1.6
Natural-gas-weighted Industrial Production -0.8 1.3 1.4 2.9

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