Natural Gas
U.S. Natural Gas Consumption
EIA expects that natural gas consumption will average 69.9 billion cubic feet per day (Bcf/d) in 2012, an increase of 3.3 Bcf/d (4.9 percent) from 2011 and an upward revision of 0.5 Bcf/d from last month's Outlook. EIA expects that large gains in electric power use in 2012 will more than offset declines in residential and commercial use.
Projected consumption of natural gas in the electric power sector grows by 21 percent in 2012, primarily driven by the increased relative cost advantages of natural gas over coal for power generation in some regions. Consumption in the electric power sector peaks at 31.2 Bcf/d in the third quarter of 2012, when electricity demand for air conditioning is highest. This compares with 27.7 Bcf/d during the third quarter of 2011.
Growth in total natural gas consumption slows in 2013, with forecast consumption averaging 71.1 Bcf/d (U.S. Natural Gas Consumption Chart). However, unlike 2012, growth in 2013 is driven by consumption increases from the residential, commercial, and industrial sectors. A forecast of near-normal weather next winter drives 2013 increases in residential and commercial consumption of 7.7 percent and 4.5 percent, respectively. Although projected natural gas burn in the electric power sector declines by 1.9 percent from 2012, it remains at historically high levels in 2013.
U.S. Natural Gas Production and Imports
Total marketed production of natural gas grew by 4.8 Bcf/d (7.9 percent) in 2011. This strong growth was driven in large part by increases in shale gas production. EIA expects continued year-over-year growth in 2012, though not as strong as the previous year (U.S. Natural Gas Production and Imports Chart). This month's Outlook revises upward the forecast for marketed production for 2012, partially reflecting upward revisions to historical data for the first few months of the year. EIA, however, expects a small drop in production in the coming months, reflecting the decline in rigs since October 2011. According to Baker Hughes, the natural gas rig count was 542 as of July 6, 2012, up slightly from last week, which was the lowest rig count since 1999. EIA's production survey indicates natural gas marketed production fell between February and March 2012, but rebounded in April. Declining production from less-profitable "dry" natural gas plays such as the Haynesville Shale is offset by growth in production from liquids-rich natural gas production areas such as the Eagle Ford and wet areas of the Marcellus Shale, and associated gas from the growth in domestic crude oil production.
Based on the outlook from National Oceanic and Atmospheric Administration for the current Atlantic hurricane season, EIA estimates a 70-percent probability that total shut-in natural gas production in the GOM during the upcoming hurricane season (June through November) will fall somewhere between 5.8 and 16.2 Bcf, with a median outcome of 9.5 Bcf (an average of 0.05 Bcf/d over the 6 months; see the 2012 Outlook for Hurricane-Related Production Outages in the Gulf of Mexico). In late June, Tropical Storm Debby caused several days of disruption to crude oil and natural gas production. During the peak of Debby-related outages, 1.6 Bcf/d of natural gas was shut in, or about 35 percent of normal production. Almost all shut-in production resumed after a few days with a total production outage of about 3.9 Bcf.
EIA expects pipeline gross imports will fall by 0.2 Bcf/d (2.6 percent) in 2012, as domestic supply continues to displace Canadian sources. The warm winter in the United States also added to the year-over-year decline in imports, particularly to the Northeast, where imported natural gas can serve as additional supply in times of very cold weather. EIA expects pipeline gross imports will increase by 2.2 percent in 2013, partially due to near-normal winter weather driving higher residential and commercial demand. Pipeline gross exports grew by 1.0 Bcf/d (33 percent) in 2011, driven by increased exports to Mexico, but are expected to remain flat in 2012 and grow by 0.2 Bcf/d in 2013.
Liquefied natural gas (LNG) imports are expected to fall by 0.4 Bcf/d (44 percent) in 2012. EIA expects that an average of about 0.6 Bcf/d will arrive in the United States (mainly at the Elba Island terminal in Georgia) in 2012 and 2013, either to fulfill long-term contract obligations or to take advantage of temporarily high local prices due to cold snaps and disruptions.
U.S. Natural Gas Inventories
Working natural gas inventories remain at historically high levels for the time of year. As of June 29, 2012, according to EIA's Weekly Natural Gas Storage Report, working inventories totaled 3,102 Bcf, 602 Bcf greater than last year's level and 573 Bcf above the five-year average. The weekly report from June 15, 2012, marked the first time in EIA's history that working inventories surpassed the 3,000 Bcf mark during the month of June. EIA expects that inventory levels at the end of October 2012 will set a new record high slightly above 4,000 Bcf (U.S. Working Natural Gas in Storage Chart), although the projected increase of 1,525 Bcf in working gas inventory during the 2012 injection season (from the end of March to the end of October) would be the smallest build since 1991. In 2013, working inventory levels recede from record highs, although they will still remain abundant compared with recent history.
Note: Colored band around storage levels represents the range between the minimum and maximum from Jan. 2007 - Dec. 2011.
U.S. Natural Gas Prices
Natural gas spot prices averaged $2.47 per MMBtu at the Henry Hub in June 2012, up
.04 per MMBtu from the May average. Prices remain at historically low levels; the June 2012 price averaged 46 percent less than the June 2011 price. Abundant supplies and lack of demand during the warm winter contributed to the current low prices. EIA expects the Henry Hub natural gas price will average $2.58 per MMBtu in 2012, with modest monthly increases through the rest of the year. EIA expects 2013 prices will average $3.22 per MMBtu (U.S. Natural Gas Prices Chart).
Natural gas futures prices for October 2012 delivery (for the 5-day period ending July 5, 2012) averaged $2.90 per MMBtu, and the average implied volatility based on options and futures prices was 55 percent (Market Prices and Uncertainty Report). Current options and futures prices imply that market participants place the lower and upper bounds for the 95-percent confidence interval for October 2012 contracts at $1.74 per MMBtu and $4.82 per MMBtu, respectively. At this time last year, the October 2011 natural gas futures contract averaged $4.33 per MMBtu and implied volatility averaged 35 percent. The corresponding lower and upper limits of the 95-percent confidence interval were $3.12 per MMBtu and $6.00 per MMBtu.
Note: Confidence interval derived from options market information for the 5 trading days ending July 5, 2012. Intervals not calculated for months with sparse trading in near-the-money options contracts.