U.S. Natural Gas Consumption Expected To Decline In 2011

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U.S. Natural Gas Consumption. EIA expects total natural gas consumption to decline by 0.9 percent in 2011. Projected residential and commercial consumption fall by about 2.7 percent in 2011 partly because of the forecast of 1.3 percent fewer heating degree-days during the winter months this year compared with last year, but also because of recent changes in the way EIA collects and reports natural gas consumption data (see Changes in Natural Gas Monthly Consumption Data Collection and the Short-Term Energy Outlook). Forecast natural gas consumption in the electric power sector falls by 1.0 percent in 2011 because of the forecast return to near-normal summer weather compared with the very warm summer last year. Forecast cooling degree-days fall by 16 percent, from 1,468 in 2010 to 1,234 in 2011. Only industrial sector natural gas consumption rises in 2011, by 1.1 percent, because of the 1.2 percent increase in the natural-gas-weighted industrial production index.

Total natural gas consumption grows by 1.6 percent in 2012 to 66.5 billion cubic feet per day (Bcf/d). While projected commercial and residential consumption decline by a slight 0.2 percent from 2011 to 2012, the electric power and industrial sectors drive growth with projected increases of 3.6 and 1.6 percent, respectively.

U.S. Natural Gas Production and Imports. Total marketed natural gas production increased significantly in 2010, by an estimated 2.4 Bcf/d, or 4.1 percent. Declines in production of 0.07 Bcf/d and 0.46 Bcf/d in Alaska and the GOM, respectively, were offset by a 2.9 Bcf/d increase in lower-48 onshore production. EIA expects average total production to fall by 0.3 percent in 2011. The latest EIA data for monthly natural gas production, which are for October 2010, showed a slight decline in the lower-48 states from the previous month. EIA expects this gradual decline to continue throughout 2011 because of a falling drilling rig count in response to lower prices. The number of rigs drilling for natural gas reported by Baker Hughes Inc. increased from a low of 665 in July 2009 to 973 in April 2010. Over the following 6 months the natural gas rig count stayed relatively unchanged, but in the last several weeks the rig count has fallen and ended December 2010 at 919 rigs, a level not seen since February 2010. The large price difference between petroleum liquids and natural gas on an energy-equivalent basis contributes to an expected shift towards drilling for liquids.

The December 2010 Natural Gas Monthly contains extensive revisions to estimated production in 2008, 2009, and much of 2010. These changes have reduced the annualized balancing items for those years. EIA's forecast has been updated to reflect these new estimates. EIA has adjusted the forecast for natural gas production in last month's Outlook downward by about 0.5 Bcf/d to reflect the revised estimates.

The projected decline in production in 2011 and increase in natural gas consumption in 2012 contribute to a strengthening of natural gas prices late in this year and next. As natural gas prices begin to rise, forecast production rebounds in 2012, growing by 2.2 percent. Projected total marketed production averages 64.2 Bcf/d in December 2012 compared with 62.3 Bcf/d and 60.6 Bcf/d in December 2010 and December 2011, respectively.

EIA expects gross pipeline imports of 8.6 Bcf/d in 2011 and 8.2 Bcf/d in 2012, year-over-year decreases of 4.3 and 4.4 percent, respectively. Canadian gas will become less competitive as new U.S. pipelines and increased lower-48 production with lower transport costs displace imports. Projected liquefied natural gas (LNG) imports average 1.1 Bcf/d in 2011, a 4.7-percent decrease from 2010 levels. Imports in 2012 grow modestly to 1.2 Bcf/d. High domestic production, high inventories, and low U.S. prices relative to European and Asian markets should continue to discourage LNG imports into North America.

U.S. Natural Gas Inventories. On January 6, 2011, working natural gas in storage stood at 3,097 Bcf, slightly below last year's level at this time (U.S. Working Natural Gas in Storage Chart). At the end of the winter heating season (March 31, 2011), EIA expects about 1,774 Bcf of working natural gas will remain in storage, a record high and well above last year's level of 1,662 Bcf. The forecast higher inventory is primarily the result of both the current high natural gas production rates and about 4 percent fewer heating degree-days during the first quarter 2011 compared with the same period last year. EIA expects record high inventories to continue through most of 2011, with falling production to bring inventories back into their historical range next year.

U.S. Natural Gas Prices. The Henry Hub spot price averaged $4.25 per MMBtu during December, an increase of about 54 cents from November's price of $3.71 per MMBtu (Henry Hub Natural Gas Price Chart). EIA expects the higher forecast production during the first half of 2011 compared with the same period last year, combined with a decline in consumption, to moderate natural gas spot prices. The projected spot price falls to a low of $3.73 per MMBtu in June then rises to $4.61 in December, averaging $4.02 per MMBtu for all of 2011, which is $0.37 per MMBtu lower than the 2010 average and $0.31 per MMBtu lower than in last month's Outlook. In 2012, the spot price rises to an average of $4.50 per MMBtu.

Uncertainty over future natural gas prices is slightly lower this year compared with last year at this time. Natural gas futures for March 2011 delivery (for the 5-day period ending January 6) averaged $4.39 per MMBtu, and the average implied volatility over the same period was 43 percent. This produced lower and upper bounds for the 95-percent confidence interval for March 2011 contracts of $3.21 per MMBtu and $6.02 per MMBtu, respectively. At this time last year, the natural gas March 2010 futures contract averaged $5.73 per MMBtu and implied volatility averaged 57 percent. The corresponding lower and upper limits of the 95-percent confidence interval were $3.88 per MMBtu and $8.47 per MMBtu.

Source: U.S. Energy Information Administration



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