‹ Analysis & Projections

Short-Term Energy Outlook

Release Date: May 12, 2015  |  Next Release Date: June 9, 2015  |  Full Report    |   Text Only   |   All Tables   |   All Figures

Natural Gas

Natural gas prices fell throughout April, before rising slightly in early May. Production and inventories remain abundant, which is expected to keep prices at relatively low levels in 2015. Preliminary data indicate recent production has surpassed the December record. Storage injections were strong in April, and EIA expects working inventories in storage will end October at 3,890 Bcf, just above the five-year (2010-14) average. EIA's Henry Hub natural gas price forecast averages $2.93/million British thermal units (MMBtu) in 2015 and $3.32/MMBtu in 2016, 14c/MMBtu and 13c/MMBtu, respectively, lower than in last month's STEO.

Natural Gas Consumption

EIA's forecast of U.S. total natural gas consumption averages 76.9 Bcf per day (Bcf/d) in 2015 and 76.3 Bcf/d in 2016, compared with 73.5 Bcf/d in 2014. Consumption growth is largely driven by demand in the industrial and electric power sectors. EIA projects natural gas consumption in the power sector to grow by 12.9% in 2015 and then fall by 2.2% in 2016. Low natural gas prices support increased use of natural gas for electricity generation in 2015. Industrial sector consumption increases by 4.0% and by 2.7% in 2015 and 2016, respectively, as new industrial projects come online, particularly in the fertilizer and chemicals sectors, and as industrial consumers continue to take advantage of low natural gas prices. Consumption of natural gas in the residential and commercial sectors is projected to decline in 2015 and 2016.

Natural Gas Production and Trade

EIA expects that marketed natural gas production will increase by 4.5 Bcf/d (6.0%) and by 1.3 Bcf/d (1.7%) 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 EIA expects natural gas prices to remain low, 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. Most growth is expected to come from the Marcellus shale, as a backlog of drilled wells are completed and new pipelines come online to deliver Marcellus gas to markets in the Northeast. Preliminary data indicate significant production growth in April and the beginning of May.

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.

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 2015 and 2016. EIA projects that LNG gross exports will increase from an average of 0.04 Bcf/d in 2014 to 0.79 Bcf/d in 2016.

Natural Gas Inventories

On May 1, natural gas working inventories totaled 1,786 Bcf, which was 742 Bcf (71%) above the level at the same time in 2014 and 67 Bcf (4%) below the previous five-year (2010-14) average for the week. So far during the refill season, injections have surpassed the five-year average injections by a wide margin. EIA projects end-of-October 2015 inventories will total 3,890 Bcf, 92 Bcf above the five-year average.

Natural Gas Prices

The Henry Hub natural gas spot price averaged $2.61/MMBtu in April, a decline of 22 cents/MMBtu from March. EIA expects monthly average spot prices to remain lower than $3/MMBtu through August, and lower than $4/MMBtu through the remainder of the forecast. The projected Henry Hub natural gas price averages $2.93/MMBtu in 2015 and $3.32/MMBtu in 2016, 14¢/MMBtu and 13¢/MMBtu, respectively, lower than in last month's STEO.

Natural gas futures contracts for August 2015 delivery traded during the five-day period ending May 7 averaged $2.85/MMBtu. Current options and futures prices imply that market participants place the lower and upper bounds for the 95% confidence interval for August 2015 contracts at $1.98/MMBtu and $4.11/MMBtu, respectively. At this time last year, the natural gas futures contract for August 2014 delivery averaged $4.78/MMBtu and the corresponding lower and upper limits of the 95% confidence interval were $3.63/MMBtu and $6.31/MMBtu.

U.S. Natural Gas Summary
  2013 2014 2015 2016
Prices (dollars per thousand cubic feet)
Henry Hub Spot 3.84 4.52 3.01 3.42
Residential Sector 10.30 10.94 10.43 10.53
Commercial Sector 8.08 8.87 8.07 8.37
Industrial Sector 4.64 5.53 4.08 4.44
Supply (billion cubic feet per day)
Marketed Production 70.39 74.72 79.22 80.56
Dry Gas Production 66.67 70.46 74.77 76.03
Pipeline Imports 7.63 7.22 7.02 6.69
LNG Imports 0.27 0.16 0.21 0.15
Consumption (billion cubic feet per day)
Residential Sector 13.46 13.90 13.63 13.13
Commercial Sector 8.98 9.48 9.08 8.89
Industrial Sector 20.31 20.97 21.81 22.41
Electric Power Sector 22.44 22.33 25.21 24.66
Total Consumption 71.69 73.47 76.87 76.29
Primary Assumptions (percent change from previous year)
Heating Degree Days 18.5 1.9 -3.0 -4.2
Cooling Degree Days -12.6 -0.5 6.3 -1.3
Commercial Employment 2.1 2.2 2.4 1.3
Natural-gas-weighted Industrial Production 1.8 2.1 0.9 2.5

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