Natural Gas

Natural Gas Consumption. U.S. consumption of natural gas averaged 83.3 billion cubic feet per day (Bcf/d) in 2020, and we expect consumption will decrease by 0.9 Bcf/d (1.1%) in 2021 and then increase by 0.6 Bcf/d (0.7%) 2022 to average 82.9 Bcf/d for the year.

The largest natural gas-consuming sector in the United States is the electric power sector. We estimate that the electric power sector will consume an average of 29.3 Bcf/d in 2021, which is 7.7% less than in 2020. We forecast that higher prices for natural gas (compared with coal prices) for power generation and rising electricity generation capacity from renewable energy will likely cause natural gas consumption in the electric power sector to decline in 2021. We forecast electric power sector consumption of natural gas will increase by 1.3% in 2022, based on an expected decline in natural gas prices next year.

We expect combined U.S. residential and commercial natural gas consumption will average 22.6 Bcf/d in 2021, up 6.0% from 2020. Compared with 1Q20, colder temperatures and people spending more time at home because of the COVID-19 pandemic led to increases in heating demand in 1Q21. Based on forecasts by the National Oceanic and Atmospheric Administration (NOAA), we assume colder temperatures with 7.0% more heating degree days (HDD) across the United States in 2021 compared with 2020. We expect natural gas consumption in the U.S. residential and commercial sectors to decline by 0.4% in 2022.

We forecast U.S. consumption of natural gas in the industrial sector will increase 1.2% in 2021 to 22.8 Bcf/d and an additional 0.9% to 23.0 Bcf/d in 2022. Our natural gas-weighted manufacturing index, based on forecasts from IHS Markit, has steadily increased after falling in 2Q20, and our forecast assumes that the natural gas-weighted manufacturing index will reach 2019 levels in 2H21.

Natural Gas Production. We forecast that U.S. dry natural gas production will average 92.6 Bcf/d in 2021, which would be up 1.3% from 2020. Natural gas production rises in response to higher crude oil and natural gas prices. We forecast Henry Hub spot prices in 2021 will average more than $1 per million British thermal units (MMBtu), or 58%, higher than the average in 2020. In addition, we expect associated natural gas production from oil directed rigs in the Permian Basin to increase in 2021 as WTI prices average almost $27/b (68%) more than in 2020. In 2022, we expect dry natural gas production to average 94.7 Bcf/d, which would be up 2.3% from 2021.

Natural Gas Trade. We forecast U.S. liquefied natural gas (LNG) exports to average 9.6 Bcf/d in 2021 and 10.2 Bcf/d in 2022, surpassing pipeline exports for the first time on an annual basis in both years. Several factors support this forecast: gradual recovery in global LNG demand, high winter LNG demand, particularly in Asia, and expansions in global LNG regasification capacity in both existing and new markets in the next two years. U.S. LNG exports are projected to increase in 2022 because of commissioning of additional LNG trains at Sabine Pass and Calcasieu Pass.

U.S. LNG exports have reached record high levels this spring, averaging 10.3 Bcf/d from March through May, supported by high spot LNG prices in Asia and Europe, and a continuous recovery in global LNG demand. We estimate that U.S. LNG exports declined to 9.0 Bcf/d in June, likely because of planned and unplanned outages at several U.S. liquefaction facilities.

Pipeline exports of U.S. natural gas have also increased as more infrastructure has been built to transport natural gas both to and within Mexico. U.S. pipeline exports averaged 7.9 Bcf/d in 2020, an increase of 1.7% compared with 2019. We expect pipeline exports to increase as more natural gas-fired power plants come online in Mexico and more pipeline infrastructure is built within Mexico and the United States. We expect gross U.S. pipeline exports to Mexico and Canada to average 9.0 Bcf/d in 2021 and 9.2 Bcf/d in 2022.

U.S. natural gas pipeline imports (almost all of which come from Canada) decreased from 2019 to 2020, continuing a trend that began in 2008. We forecast natural gas pipeline imports to increase 5.7% in 2021 because the United States will import more natural gas amid relatively flat U.S. natural gas production along with record U.S. exports of natural gas. However, pipeline imports will likely decline in 2022 in response to an increase in U.S. natural gas production in 2022.

Natural Gas Inventories. Storage withdrawals in 1Q21 were 14% higher than the five-year average because severely cold temperatures in February caused near-record storage withdrawals and because of declines in natural gas production. Total inventories were 1.8 trillion cubic feet (Tcf) at the end of March, about 2% lower than the five-year average for that time of year. For the 2021 April–October storage injection season, we expect injections will be 5% below the five-year average rate because record exports outpace increases in natural gas production. We expect that inventories will reach more than 3.6 Tcf at the end of October 2021, which would be 3% lower than the previous five-year average for the end of October and 8% lower than at the end of October 2020.

Natural Gas Prices. The Henry Hub spot price averaged $2.03/MMBtu in 2020. Natural gas prices fell through much of 2020 as U.S. natural gas consumption outside of the electric power sector declined and LNG exports also dropped. These declines outpaced declines in production and contributed to inventories building at a faster rate than the five-year average.

The Henry Hub spot price rose to an average of $3.25/MMBtu in 1H21, somewhat elevated by the February monthly average price of $5.35/MMBtu, which was strongly influenced by cold weather. More recently, the daily spot price reached $3.79/MMBtu on June 30. U.S. natural gas prices rose in 1H21 as growth in demand for natural gas outpaced supply. The combination of U.S. consumption of natural gas outside of the power sector and exports together were up almost 6 Bcf/d in 1H21 compared with the same period in 2020. At the same time, domestic dry natural gas production plus imports were almost unchanged in 1H21 compared in 1H20.

We expect the Henry Hub spot price to fall from recent highs and average $3.22/MMBtu in 3Q21 and also average $3.22/MMBtu for all of 2021. For the remaining months in 2021, we expect prices to remain more than $3.00/MMBtu, driven by continuing record natural gas exports and rising demand for natural gas outside of the electric power sector amid relatively flat natural gas production. We expect downward price pressure to emerge in 2022 as U.S. natural gas production increases and export growth slows. We forecast the Henry Hub spot price to average $3.00/MMBtu in 2022.