‹ Analysis & Projections

Short-Term Energy Outlook

Release Date: August 11, 2015  |  Next Release Date: September 9, 2015  |  Full Report    |   Text Only   |   All Tables   |   All Figures

Natural Gas

The natural gas storage injection season passed the halfway mark in mid-July, and inventories totaled 2,912 Bcf on July 31, which was 23% higher than a year earlier and 2% higher than the previous five-year average (2010-14). Inventories began the injection season about 173 Bcf lower than the five-year average, but have been greater than the five-year average since the end of May. EIA projects inventories will end October at 3,867 Bcf, which would be the second-highest October level on record. Year-over-year strength in production has boosted storage injections this summer, despite warmer temperatures, which have increased natural gas use in the power sector to serve air conditioning demand.

Tallgrass Energy brought online the final phase of its east-to-west pipeline reversal on the Rockies Express Pipeline (REX) earlier this month. This expansion allows for 1.8 Bcf/d of Marcellus and Utica natural gas to flow westward from eastern Ohio to Missouri. REX began service in 2009 to move natural gas from the Rockies to Midwestern and Northeastern markets. Over the past several years, however, demand for Rockies natural gas in the east has declined because of exponential growth in Marcellus-area production.

Natural Gas Consumption

EIA's forecast of U.S. total natural gas consumption averages 76.5 Bcf/d in both 2015 and 2016, compared with 73.5 Bcf/d in 2014. EIA projects natural gas consumption in the power sector to increase by 13.9% in 2015 and then decrease by 3.4% in 2016. Relatively low natural gas prices support increased use of natural gas for electricity generation in 2015. Industrial sector consumption increases by 2.3% in 2015 and by 5.0% in 2016, as new industrial projects, particularly in the fertilizer and chemicals sectors, come online later this year and next year, and as industrial consumers continue to take advantage of low natural gas prices. Natural gas consumption in the residential and commercial sectors is projected to decline in both 2015 and 2016.

Natural Gas Production and Trade

EIA expects that marketed natural gas production will increase by 4.0 Bcf/d (5.4%) and by 1.8 Bcf/d (2.3%) in 2015 and 2016, respectively. Despite data showing month-over-month production declines in May and June, natural gas production remains higher than year-ago levels. EIA expects moderate growth through 2016, with increases in the Lower 48 states expected to more than offset long-term production declines in the Gulf of Mexico. Increases in drilling efficiency will continue to support growing natural gas production in the forecast despite relatively low natural gas prices. 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 are expected to support growth in exports to Mexico. 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 Mexican natural gas production.

EIA projects LNG gross exports will increase to an average of 0.79 Bcf/d in 2016, with the startup of a major LNG liquefaction plant in the Lower 48 states.

Natural Gas Inventories

On July 31, natural gas working inventories totaled 2,912 Bcf, which was 535 Bcf (23%) above the level at the same time in 2014 and 64 Bcf (2%) above the five-year average for that week. To this point in the injection season, injections have surpassed the five-year average by a wide margin. EIA projects end-of-October 2015 inventories will total 3,867 Bcf, 69 Bcf (1.8%) above the five-year average for that time.

Natural Gas Prices

The Henry Hub natural gas spot price averaged $2.84/million British thermal units (MMBtu) in July, an increase of 6 cents/MMBtu from the June price. The current STEO lowers the projection for prices slightly from last month's forecast; monthly average spot prices remain lower than $3/MMBtu through October, and lower than $4/MMBtu through the remainder of the forecast. The projected Henry Hub natural gas price averages $2.89/MMBtu in 2015 and $3.21/MMBtu in 2016.

Natural gas futures contracts for November 2015 delivery traded during the five-day period ending August 6 averaged $2.91/MMBtu. Current options and futures prices imply that market participants place the lower and upper bounds for the 95% confidence interval for November 2015 contracts at $2.08/MMBtu and $4.06/MMBtu, respectively. At this time last year, the natural gas futures contract for November 2014 delivery averaged $3.96/MMBtu, and the corresponding lower and upper limits of the 95% confidence interval were $3.03/MMBtu and $5.16/MMBtu, respectively.

U.S. Natural Gas Summary
  2013 2014 2015 2016
Prices (dollars per thousand cubic feet)
Henry Hub Spot 3.84 4.52 2.98 3.31
Residential Sector 10.30 10.94 10.28 10.28
Commercial Sector 8.08 8.87 8.01 8.24
Industrial Sector 4.64 5.53 4.07 4.33
Supply (billion cubic feet per day)
Marketed Production 70.39 74.72 78.72 80.52
Dry Gas Production 66.67 70.46 74.09 75.73
Pipeline Imports 7.63 7.22 7.06 6.69
LNG Imports 0.27 0.16 0.21 0.15
Consumption (billion cubic feet per day)
Residential Sector 13.46 13.89 13.42 13.18
Commercial Sector 8.98 9.48 8.99 8.94
Industrial Sector 20.31 20.97 21.46 22.54
Electric Power Sector 22.44 22.33 25.44 24.58
Total Consumption 71.69 73.48 76.45 76.52
Primary Assumptions (percent change from previous year)
Heating Degree Days 18.5 1.9 -3.2 -4.3
Cooling Degree Days -12.6 -0.6 8.9 -3.2
Commercial Employment 2.1 2.2 2.5 1.7
Natural-gas-weighted Industrial Production 1.8 2.2 1.3 2.6

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