‹ Analysis & Projections

Short-Term Energy Outlook

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

Natural Gas

Recent data indicate marketed natural gas production reached a record 77.3 Bcf/d in November. Despite cold weather and reports of production freeze-offs this winter, supply has remained abundant and prices have fallen. The February 2015 natural gas futures contract expired at $2.87/MMBtu, and prices for the March contract have fallen further, settling at $2.60/MMBtu on February 5. Henry Hub spot prices are now projected to average $3.05/MMBtu in 2015, $1.34/MMBtu lower than in 2014 and $0.39/MMBtu lower than in last month's forecast. Lower expected prices in 2015 contribute to increasing consumption of natural gas for power generation, which is projected to be 5.5% above the 2014 level.

Natural Gas Consumption

EIA projects that U.S. total natural gas consumption will average 74.3 Bcf/d in 2015 and 75.2 Bcf/d in 2016, compared with an estimated 73.3 Bcf/d in 2014. Growth is largely driven by demand in the industrial and electric power sectors, while residential and commercial consumption is projected to decline in 2015 and 2016. Natural gas consumption in the power sector is expected to average 23.5 Bcf/d in 2015, a 0.5 Bcf/d increase from last month's STEO. EIA expects power sector consumption to grow by 2.6%, to 24.1 Bcf/d, in 2016. Industrial sector consumption increases by 5.6% and 1.9% in 2015 and 2016, respectively, as new industrial projects come online, particularly in the fertilizer and chemicals sectors, and industrial consumers are able to take advantage of low natural gas prices.

Natural Gas Production and Trade

EIA expects that marketed natural gas production will increase by 2.9 Bcf/d (3.8%) and 1.7 Bcf/d (2.2%) in 2015 and 2016, respectively. This increase reflects continuing strong production 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. Additionally, preliminary data indicate freeze-offs modestly reduced production in January, but production has quickly recovered and growth continues. 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 contribute to lower demand for natural gas imports from Canada and increasing 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 January 30, natural gas working inventories totaled 2,428 Bcf, 468 Bcf (24%) above the level at the same time in 2014 and 29 Bcf (1%) below 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 but since then have consistently narrowed the gap. EIA projects that end-of-March 2015 inventories will total 1,699 Bcf, 43 Bcf more than the five-year (2010-14) average.

Natural Gas Prices

The Henry Hub natural gas spot price averaged $2.99/MMBtu in January, a decline of $0.49/MMBtu from December, and the first monthly average price under $3/MMBtu since September 2012. EIA expects monthly average spot prices to remain less than $3/MMBtu through the winter, and less than $4/MMBtu through the remainder of the forecast. The projected Henry Hub natural gas price averages $3.05/MMBtu in 2015 and $3.47/MMBtu in 2016.

Natural gas futures contracts for May 2015 delivery, traded during the five-day period ending February 5, averaged $2.71/MMBtu. Current options and futures prices imply that market participants place the lower and upper bounds for the 95% confidence interval for May 2015 contracts at $1.79/MMBtu and $4.11/MMBtu, respectively. At this time last year, the natural gas futures contract for May 2014 delivery averaged $4.48/MMBtu and the corresponding lower and upper limits of the 95% confidence interval were $3.28/MMBtu and $6.13/MMBtu.

U.S. Natural Gas Summary
  2013 2014 2015 2016
Prices (dollars per thousand cubic feet)
Henry Hub Spot 3.84 4.52 3.15 3.57
Residential Sector 10.30 10.91 10.28 10.56
Commercial Sector 8.08 8.84 8.34 8.78
Industrial Sector 4.64 5.48 4.16 4.58
Supply (billion cubic feet per day)
Marketed Production 70.39 74.43 77.28 78.95
Dry Gas Production 66.67 70.17 72.80 74.38
Pipeline Imports 7.63 7.15 6.89 6.69
LNG Imports 0.27 0.16 0.17 0.15
Consumption (billion cubic feet per day)
Residential Sector 13.46 13.81 12.95 12.63
Commercial Sector 8.98 9.39 8.79 8.79
Industrial Sector 20.31 21.08 22.27 22.69
Electric Power Sector 22.34 22.25 23.48 24.08
Total Consumption 71.59 73.30 74.34 75.25
Primary Assumptions (percent change from previous year)
Heating Degree Days 18.5 1.9 -7.5 -0.1
Cooling Degree Days -12.6 -0.7 5.1 0.7
Commercial Employment 2.2 2.2 2.5 1.7
Natural-gas-weighted Industrial Production 1.8 2.4 4.0 3.0

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