U.S. Natural Gas Consumption. Projected natural gas consumption increases by an average 1.2 billion cubic feet per day (Bcf/d) in 2011 and 0.5 Bcf/d in 2012, with growth in the electric power and industrial sectors driving the increases (U.S. Natural Gas Consumption Chart). Projected natural gas consumption for electricity generation increases by 0.36 Bcf/d and 0.37 Bcf/d in 2011 and 2012, respectively. EIA expects consumption in the industrial sector to rise from 18.1 Bcf/d to 18.5 Bcf/d in 2011 and 18.6 Bcf/d in 2012, as the projected natural-gas-weighted industrial production index also continues to rise but at a slowing rate.
Natural gas consumption for the third quarter of 2011 averaged an estimated 57.9 Bcf/d, with consumption in the electric power sector making up almost half of the total. There were an estimated 942 cooling degree-days for the third quarter 2011, about 22 percent more than the 30-year normal, and above the 930 cooling degree-days for the record-breaking heat of the third quarter of 2010.
U.S. Natural Gas Production and Imports. EIA expects marketed natural gas production to average 66.0 Bcf/d in 2011, a 4.2 Bcf/d (6.7 percent) increase over 2010. The entirety of this growth is coming from increases in onshore production in the lower 48 States, which will more than offset a steep year-over-year decline of over 0.9 Bcf/d (15 percent) in the Federal Gulf of Mexico (GOM) and a small decline in Alaska. EIA expects that overall production will continue to grow in 2012, but at a slower pace, increasing 1.4 Bcf/d (2.1 percent) to an average of 67.4 Bcf/d.
Drilling activity has been resilient despite lower natural gas spot and futures prices. According to Baker Hughes, the September 30 rig count was 923 active drilling rigs targeting natural gas, up from this year's low of 866 on May 20. If drilling continues to increase, production could grow more than expected in 2012.
Growing domestic natural gas production has reduced reliance on natural gas imports and contributed to increased exports. EIA expects that pipeline gross imports of natural gas will fall by 4.8 percent to 8.6 Bcf/d during 2011 and by another 3.1 percent to 8.4 Bcf/d in 2012. Projected U.S. imports of liquefied natural gas (LNG) fall from 1.2 Bcf/d in 2010 to 0.9 Bcf/d in 2011 and to 0.7 Bcf/d in 2012. Pipeline gross exports to Mexico and Canada are expected to average 4.1 Bcf/d in 2011 and 4.2 Bcf/d in 2012, compared with 3.1 Bcf/d in 2010.
U.S. Natural Gas Inventories. On September 30, 2011, working natural gas in storage stood at 3,409 Bcf, 91 Bcf below the 2010 end-of-September level (U.S. Working Natural Gas in Storage Chart). EIA expects that inventories, though currently lower than last year, will come close to last year's levels towards the end of the 2011 injection season, reaching 3.77 Tcf at the end of October 2011.
U.S. Natural Gas Prices. The Henry Hub spot price averaged $3.90 per MMBtu in September 2011, 15 cents lower than the August 2011 average (Henry Hub Natural Gas Price Chart). EIA expects that Henry Hub spot prices will fall further in October, before rising above $4 per MMBtu in December. This month's Outlook lowers the 2011 forecast by 5 cents to $4.15 per MMBtu, 24 cents less than the 2010 average. Although the average 2011 spot natural gas price is lower than the 2010 average, the forecast price over the winter 2011-12 is higher than last winter's average. Last year the Henry Hub spot price hit a low of $3.43 per million Btu in October 2010. EIA expects this winter's heating season will start out with an average Henry Hub spot price of $3.78 per million Btu in October 2011. EIA expects the Henry Hub price in 2012 to average $4.32 per MMBtu.
Natural gas futures prices for December 2011 delivery (for the 5-day period ending October 6, 2011) averaged $3.93 per MMBtu, and the average implied volatility was 34 percent (Market Prices and Uncertainty Report). The lower and upper bounds for the 95-percent confidence interval for December 2011 contracts are $3.13 per MMBtu and $4.93 per MMBtu. At this time last year, the December 2010 natural gas futures contract averaged $4.07 per MMBtu and implied volatility averaged 39 percent. The corresponding lower and upper limits of the 95-percent confidence interval were $3.09 per MMBtu and $5.37 per MMBtu.