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Short-Term Energy Outlook

Release Date: August 12, 2014  |  Next Release Date: September 9, 2014  |  Full Report    |   Text Only   |   All Tables   |   All Figures

Natural Gas

This month's STEO raises the outlook for total marketed natural gas production in 2014 by 0.8 billion cubic feet per day (Bcf/d) to 73.9 Bcf/d. The EIA 914 production survey has indicated strong growth in the Lower 48 states through May, while additional preliminary data sources indicate continued gains in production in June and July. Increases come largely from the Marcellus states and Texas. Strength in production over the summer, in addition to mild weather, contributed to multiple weekly storage injections of 100 Bcf or greater, and storage is on track for a record overall injection. This month's STEO slightly raises the projected end-of-October working gas inventory to 3,460 Bcf. Natural gas spot prices fell from $4.47/MMBtu at the beginning of July to $3.78/MMBtu at the end of the month, reflecting the current strength in supply growth and stock builds.

Natural Gas Consumption

EIA expects total natural gas consumption will average 72.6 Bcf/d in 2014, an increase of 1.7% from 2013, led by the industrial sector. In 2015, total natural gas consumption increases by 0.4 Bcf/d as continued industrial sector growth offsets lower residential and commercial consumption. Higher natural gas prices this year contribute to a 2.2% decline in natural gas consumption in the power sector to 21.8 Bcf/d in 2014. EIA expects natural gas consumption in the power sector to increase to 22.7 Bcf/d in 2015 with lower natural gas prices and the retirement of some coal plants.

Natural Gas Production and Trade

EIA expects natural gas marketed production to grow by an annual rate of 5.3% in 2014 and 2.1% in 2015. STEO projects that strong increases in the Lower 48 states will offset Gulf of Mexico declines. As of May 2014, the most recent month for which EIA data are available, marketed production was more than 4 Bcf/d greater than it was in May 2013. Rapid natural gas production growth in the Marcellus formation has contributed to low natural gas forward prices in the Northeast, and as a result new infrastructure has been proposed to take gas to other market regions. In June, the eastward-flowing Rockies Express Pipeline (REX) began service on its Seneca Lateral, which will take Marcellus gas westward to the Midwest. REX's parent company, Tallgrass Energy, plans to add bidirectional capability on a significant portion of REX's easternmost segment.

Growing domestic production is expected to continue to put downward pressure on natural gas imports from Canada, and increase exports to Mexico. As a result, EIA projects net imports to decline to 3.3 Bcf/d in 2014 and to 2.6 Bcf/d in 2015. Liquefied natural gas (LNG) imports have fallen over the past several years because higher prices in Europe and Asia are more attractive to sellers than the relatively low prices in the United States. Several companies are planning to build liquefaction capacity to export LNG from the United States. Cheniere Energy's Sabine Pass facility is expected to be the first to liquefy natural gas produced in the Lower 48 states for export. It is scheduled to come online in stages beginning in late 2015.

Natural Gas Inventories

Natural gas working inventories totaled 2,389 Bcf as of August 1, which was 538 Bcf lower than the same time last year and 608 Bcf lower than the previous five-year (2009-13) average. The injection season began somewhat slowly in April, but has continued at a strong pace, with injections averaging above the five-year average throughout most of the injection season. EIA expects working gas stocks will reach 3,463 Bcf at the end of October, 353 Bcf lower than at the same time last year.

Natural Gas Prices

Natural gas spot prices fell from $4.47/million British thermal units (MMBtu) at the beginning of July to $3.78/MMBtu at the end of the month as natural gas stock builds continued to outpace the historical norms. EIA expects spot prices will remain below $4/MMBtu through October, before rising with winter heating demand. Projected Henry Hub natural gas prices average $4.46/MMBtu in 2014 and $4.00/MMBtu in 2015.

Natural gas futures prices for November 2014 delivery (for the five-day period ending August 7) averaged $3.96/MMBtu. Current options and futures prices imply that market participants place the lower and upper bounds for the 95% confidence interval for November 2014 contracts at $3.03/MMBtu and $5.16/MMBtu, respectively. At this time last year, the natural gas futures contract for November 2013 averaged $3.58/MMBtu and the corresponding lower and upper limits of the 95% confidence interval were $2.68/MMBtu and $4.79/MMBtu.

U.S. Natural Gas Summary
  2012 2013 2014 2015
Prices (dollars per thousand cubic feet)
Henry Hub Spot 2.83 3.84 4.59 4.12
Residential Sector 10.69 10.31 11.06 11.35
Commercial Sector 8.09 8.12 9.02 9.20
Industrial Sector 3.88 4.66 5.47 5.10
Supply (billion cubic feet per day)
Marketed Production 69.15 70.18 73.89 75.47
Dry Gas Production 65.73 66.53 69.76 71.21
Pipeline Imports 8.10 7.63 7.56 7.15
LNG Imports 0.48 0.27 0.17 0.17
Consumption (billion cubic feet per day)
Residential Sector 11.34 13.54 13.82 12.82
Commercial Sector 7.91 9.02 9.36 8.73
Industrial Sector 19.74 20.45 21.31 22.38
Electric Power Sector 24.89 22.34 21.84 22.74
Total Consumption 69.76 71.33 72.57 72.97
Primary Assumptions (percent change from previous year)
Heating Degree Days -12.6 18.5 2.0 -7.2
Cooling Degree Days 1.7 -12.8 1.9 2.6
Commercial Employment 2.2 2.2 2.1 1.8
Natural-gas-weighted Industrial Production 2.2 1.8 2.5 3.3

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