EIA forecasts lower U.S. natural gas consumption in 2020
In the latest Short-Term Energy Outlook (STEO), the U.S. Energy Information Administration (EIA) forecasts that decreases in natural gas consumption in the United States in 2020 will be driven by declines in natural gas used in the industrial, commercial, and residential sectors. In the U.S. electric power sector, EIA forecasts natural gas consumption to decline in the second half of 2020 after growing in the first half of the year.
EIA expects domestic consumption of natural gas in 2020 will fall 3.4 billion cubic feet per day (Bcf/d) compared with 2019, led by a 1.6 Bcf/d decline in industrial natural gas consumption. EIA forecasts lower overall U.S. consumption in 2020 because of reduced economic activity related to the impact of the 2019 novel coronavirus disease (COVID-19) and milder-than-normal temperatures in the first quarter of 2020 that reduced demand for space heating in buildings.
In 2020, EIA expects natural gas consumption in the residential and commercial sectors to decrease by 3.7% and 6.9%, respectively. Warmer weather in the first quarter of 2020 was the largest contributor to falling residential and commercial demand; combined residential and commercial demand was down 5.6 Bcf/d in the first quarter of 2020 compared with the first quarter of 2019. January 2020 was the fifth warmest January on record and had 15.3% fewer heating degree days (HDDs) than the 10-year average, a contributing factor to lower demand for the quarter.
Residential and commercial demand account for a small fraction of U.S. natural gas consumption outside of winter months when heating demand is high. However, EIA expects weaker economic conditions in the coming months to further reduce average 2020 natural gas consumption in the commercial sector.
Weak economic conditions also contribute to lower industrial natural gas demand, which EIA expects to decline in the United States from an average of 21.4 Bcf/d in 2019 to an average of 19.9 Bcf/d in 2020, the first time it has dipped lower than 20.0 Bcf/d since the summer of 2016. EIA forecasts that the natural gas-weighted production index, which estimates manufacturing activity based on subsectors of the manufacturing industry and their relative importance to total natural gas consumption, will fall 15.3% between January 2020 and October 2020. If this forecast materializes, the natural gas-weighted production index is forecast to reach its lowest point since 2009.
In the first half of 2020, EIA expects natural gas used for electric power in the United States to grow 1.6 Bcf/d compared with the first half of 2019 because of low natural gas prices and lower-than-expected natural gas capacity additions. However, EIA forecasts U.S. natural gas consumption during the second half of 2020 to decline 2.2 Bcf/d compared with the second half of 2019. EIA forecasts rising natural gas prices in the second half of 2020, which will drive down natural gas consumption for electric power.
In the May STEO, EIA expects the Henry Hub spot price to increase from $1.88 per million British thermal units (MMBtu) in May 2020 to $2.94/MMBtu in December 2020. Higher natural gas prices will cause some coal-fired generation units to become more economical to dispatch relative to natural gas-fired units. In addition, weaker economic conditions will lead to lower total demand for electric power, which EIA expects will decline 6% in the second half of 2020 compared with the second half of 2019.
Principal contributor: Stephen York