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Short-Term Energy Outlook

Release Date: November 6, 2018  |  Next Release Date: December 11, 2018  |  Full Report    |   Text Only   |   All Tables   |   All Figures

Natural Gas

Prices: The front-month natural gas futures contract for delivery at the Henry Hub settled at $3.24/million British thermal units (MMBtu) on November 1, 2018, an increase of 14 cents/MMBtu from October 1 (Figure 8). Several factors have contributed to higher Henry Hub prices. Warmer-than-normal temperatures persisted into early October, helping to maintain high power demand for natural gas in some parts of the country, while an early round of colder temperatures in other parts of the country resulted in increased residential and commercial heating demand. In addition, nuclear outages further contributed to demand for natural gas in power generation. The higher demand helped to keep storage levels low heading into winter, which put upward pressure on prices. Working gas in underground storage remained 638 billion cubic feet (Bcf) (16.9%) lower than the five-year (2013–17) average for the week ending October 26 and 623 Bcf (16.5%) lower than last year at this time.

Figure 8: U.S. natural gas front-month futures prices and storage

Implied volatility: Concerns about low storage levels as winter approaches contributed to an increase in volatility in natural gas futures. Natural gas implied volatility averaged 38.7% in October, near the five-year average (Figure 9). In February 2018, implied volatility fell lower than the five-year range, and, during the summer, it reached the lowest levels ever recorded for the natural gas front-month contract. Record natural gas production growth and production levels helped to reduce concerns about supply availability and kept prices in a narrow trading range. Record natural gas demand for power generation and increased exports, however, countered some of the production growth and prevented inventories from reducing the storage deficit from last winter. Volatility re-emerged as the end of the injection period approached with inventories still lower than historical levels.

Figure 9:Natural gas implied volatility, monthly averages

U.S. Natural Gas Summary
  2016201720182019
Prices (dollars per thousand cubic feet)
Henry Hub Spot 2.613.103.123.09
Residential Sector 10.0410.8610.7610.91
Commercial Sector 7.297.867.928.02
Industrial Sector 3.514.104.164.18
Supply (billion cubic feet per day)
Marketed Production 77.6079.9989.5596.65
Dry Gas Production 72.6674.7783.2389.58
Pipeline Imports 7.978.127.857.21
LNG Imports 0.240.210.190.22
Consumption (billion cubic feet per day)
Residential Sector 11.8812.0913.2113.16
Commercial Sector 8.508.679.069.15
Industrial Sector 21.1221.7822.6222.68
Electric Power Sector 27.2825.3929.1329.08
Total Consumption 74.9874.3281.1181.75
Primary Assumptions (percent change from previous year)
Heating Degree Days -5.1-1.310.8-1.1
Cooling Degree Days 4.7-8.512.9-14.6
Commercial Employment 2.21.81.71.6
Natural-gas-weighted Industrial Production 1.12.92.83.6