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Short-Term Energy Outlook

Release Date: March 12, 2019  |  Next Release Date: April 9, 2019  |  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 $2.87/million British thermal units (MMBtu) on March 7, 2019, an increase of 13 cents/MMBtu from February 1, 2019 (Figure 6). After showing much higher volatility since September, front-month futures prices in February traded within a range of 37 cents/MMBtu, the narrowest range for that month in 19 years. Colder-than-normal temperatures in the second half of the month contributed to larger inventory draws and rising prices. Storage withdrawals for the three weeks ending March 1 totaled 492 billion cubic feet (Bcf), which was 131 Bcf (36%) higher than the five-year average (2014–18). The higher-than-average withdrawals caused the inventory deficit to the five-year average to reach 464 Bcf (25%) on March 1.

Figure 6: U.S. natural gas fron-month futures prices and storage

Supply and demand: In the current STEO, EIA expects that total supply of natural gas will outpace demand through the end of 2020. EIA estimates that, in January 2019, the 12-month average of natural gas supply (production combined with imports) exceeded the 12-month average of demand (consumption combined with exports) for the first time since December 2017 (Figure 7). EIA forecasts that natural gas production will continue to increase, setting record highs in 2019 and in 2020. In addition, based on company reports, EIA expects new liquefied natural gas (LNG) capacity to come online this year and contribute to rising LNG exports. EIA expects the bulk of this capacity to start in the second quarter of 2019. As a result of the ongoing production growth, however, the 12-month moving average of supply is forecast to exceed demand through the forecast period. EIA forecasts that the higher supply growth will bring inventory levels back near five-year averages and help to keep price levels moderate. EIA forecasts Henry Hub spot prices to average $2.85/MMBtu in 2019, down by 30 cents/MMBtu from the 2018 average.

Figure 7: Natural gas production plus imports and consumption plus exports

Ethane-natural gas price spreads: The price spread between ethane and natural gas has remained greater than $1/MMBtu since mid-January. Ethane spot prices at the Mt. Belvieu, Texas, hydrocarbon gas liquids (HGL) trading hub were highly correlated with Henry Hub natural gas spot prices from about 2012 until mid-2017 (Figure 8). Since then, additions to petrochemical capacity in the form of new-build ethylene crackers as well as expansions and debottlenecking at existing facilities have increased demand for ethane and contributed to rising ethane prices. Growing exports, especially from the Morgan’s Point terminal on the Houston Ship Channel, have also put upward pressure on ethane prices since mid-2017. With higher ethane prices relative to natural gas, producers further inland are likely able to economically extract ethane from natural gas and cover transportation costs to the U.S. Gulf Coast.

Figure 8: Natural gas futures and ethane spot prices

U.S. Natural Gas Summary
  2017201820192020
Prices (dollars per thousand cubic feet)
Henry Hub Spot 3.103.272.952.91
Residential Sector 10.8610.4810.7310.94
Commercial Sector 7.867.817.917.87
Industrial Sector 4.104.204.124.04
Supply (billion cubic feet per day)
Marketed Production 79.9989.6497.5999.19
Dry Gas Production 74.7783.3590.7392.02
Pipeline Imports 8.127.777.006.78
LNG Imports 0.210.200.220.22
Consumption (billion cubic feet per day)
Residential Sector 12.0913.6413.5713.18
Commercial Sector 8.679.559.429.06
Industrial Sector 21.7822.6523.1723.36
Electric Power Sector 25.3929.1129.7030.11
Total Consumption 74.3282.0683.5783.68
Primary Assumptions (percent change from previous year)
Heating Degree Days -1.311.8-1.7-0.6
Cooling Degree Days -8.310.9-13.20.3
Commercial Employment 1.71.61.90.9
Natural-gas-weighted Industrial Production 2.92.83.31.2