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Short-Term Energy Outlook

Release Date: March 6, 2018  |  Next Release Date: April 10, 2018  |  Full Report    |   Text Only   |   All Tables   |   All Figures

Natural Gas

The front-month natural gas futures contract for delivery at Henry Hub settled at $2.70/million British thermal units (MMBtu) on March 1, a decrease of 16 cents/MMBtu from February 1 (Figure 8). Warmer weather in the second half of January and in February contributed to the fall in natural gas prices. U.S. population-weighted heating degree days (HDD) averaged 12% below normal for the four weeks ending February 22, which put downward pressure on natural gas prices throughout the month. The Henry Hub natural gas spot price averaged $2.66/MMBtu in February, $1.03/MMBtu lower than January.

Figure 8: Natural gas front-month futures prices and actual minus historical average HDD and CDD

The historical and implied volatilities of natural gas prices both increased in January, as typically happens each winter (Figure 9). Historical volatility reached 67% on February 5, the highest level since January 2017, reflecting the price spikes at the beginning of January and significant price declines at the end of the month. Implied volatility, however, declined quickly at the end of January and fell to 26% on February 28, the lowest implied volatility since June 2014. Implied volatility represents the market’s expectation about near-term price movements; as a result, the low natural gas price implied volatility may indicate that strong production growth will be sufficient to meet demand, despite inventories that are currently below their five-year average.

Figure 9: Natural gas historical and implied volatility

Natural gas futures prices fell in the front-month contract, and substantial price decreases occurred in contracts several months into the future. These price declines significantly reduced the market-derived probability of the July 2018 Henry Hub futures contract expiring above $3/MMBtu; the probabilities fell from 42% at the beginning of the month to 28% on March 1 (Figure 10). Natural gas inventory withdrawals for the four weeks ending February 23 were 53 billion cubic feet (9%) below the five-year average, which likely contributed to an improved supply outlook for the next several months.

Figure 10: Probability of the July 2018 Henry Hub contract expiring above price levels

U.S. Natural Gas Summary
Prices (dollars per thousand cubic feet)
Henry Hub Spot 2.613.103.103.19
Residential Sector 10.0410.9210.6610.94
Commercial Sector 7.297.877.888.05
Industrial Sector 3.524.144.174.29
Supply (billion cubic feet per day)
Marketed Production 77.8178.9287.8389.07
Dry Gas Production 72.8573.6081.7082.67
Pipeline Imports 7.978.117.828.26
LNG Imports
Consumption (billion cubic feet per day)
Residential Sector 11.8712.1212.7912.89
Commercial Sector 8.488.709.009.02
Industrial Sector 21.1021.6521.8822.19
Electric Power Sector 27.2825.3427.4627.92
Total Consumption 75.1074.2278.1979.36
Primary Assumptions (percent change from previous year)
Heating Degree Days -5.1-
Cooling Degree Days 4.7-8.6-2.2-1.2
Commercial Employment
Natural-gas-weighted Industrial Production