Natural Gas

• In August, the Henry Hub natural gas spot price averaged $2.30 per million British thermal units (MMBtu), up from an average of $1.77/MMBtu in July. Higher natural gas spot prices reflect rising demand for natural gas from the U.S. electric power sector as a result of warmer-than-normal temperatures during August and rising demand for U.S. liquefied natural gas (LNG) exports amid declining U.S. natural gas production. EIA expects that rising domestic demand and demand for LNG exports heading into winter, combined with reduced production, will cause Henry Hub spot prices to rise to a monthly average of $3.40/MMBtu in January 2021. EIA expects that monthly average spot prices will remain higher than $3.00/MMBtu for all of 2021, averaging $3.19/MMBtu for the year, up from a forecast average of $2.16/MMBtu in 2020.

• EIA estimates that total U.S. working natural gas in storage ended August at 3.5 trillion cubic feet (Tcf), 13% more than the five-year (2015–19) average. In the forecast, EIA expects inventories to reach almost 4.0 Tcf on October 31, which would be 6% more than the five-year average.

• EIA expects that total U.S. consumption of natural gas will average 82.7 billion cubic feet per day (Bcf/d) in 2020, down 2.7% from 2019. The largest decline in consumption occurs in the industrial sector. EIA forecasts industrial consumption will average 21.9 Bcf/d in 2020, down 1.0 Bcf/d from 2019 as a result of reduced manufacturing activity. The decline in total U.S. consumption also reflects lower heating demand in early 2020, contributing to residential and commercial demand in 2020 averaging 12.9 Bcf/d (down 0.8 Bcf/d from 2019) and 8.8 Bcf/d (down 0.8 Bcf/d from 2019), respectively. EIA expects U.S. natural gas consumption will average 79.1 Bcf/d in 2021, a 4.3% decline from 2020. The expected decline is the result of rising natural gas prices that will reduce demand for natural gas in the electric power sector.

• EIA forecasts U.S. dry natural gas production will average 89.9 Bcf/d in 2020 and monthly average production will fall from a record 96.2 Bcf/d in November 2019 to 85.5 Bcf/d in February 2021, before increasing slightly. Natural gas production declines the most in the Permian region, where EIA expects low crude oil prices will reduce associated natural gas output from oil-directed rigs. EIA’s forecast of dry natural gas production in the United States averages 86.6 Bcf/d in 2021. EIA expects production to begin rising in the second quarter of 2021 in response to higher natural gas and crude oil prices.

• EIA estimates that U.S. LNG exports averaged 3.7 Bcf/d in August, a 19% increase from July. This increase occurred amid rising spot and forward natural gas prices in Europe and Asia, which had fallen to record lows in late May and June as COVID-19 mitigation efforts reduced global natural gas consumption. Higher global forward prices indicate improving netbacks for buyers of U.S. LNG in European and Asian markets for the upcoming fall and winter seasons amid expectations of natural gas demand recovery and potential LNG supply reduction because of maintenance at the Gorgon LNG plant in Australia. EIA forecasts that U.S. LNG exports will return to pre-COVID levels by November 2020 and will average more than 9 Bcf/d from December 2020 through February 2021.