The Henry Hub natural gas spot price of $1.93/MMbtu in December 2015 marked the lowest monthly average since March 1999. However, US gas prices are expected to rise over next 2 years, reflecting consumption growth, mainly from the industrial sector, that outpaces near-term production growth.
According to the US Energy Information Administration’s latest Short-Term Energy Outlook (STEO), Henry Hub spot prices are forecast to average $2.65/MMbtu in 2016 and $3.22/MMbtu in 2017 compared with an average of $2.63/MMbtu in 2015.
When the January STEO was published, the New York Mercantile Exchange futures strip averaged $2.50/MMbtu for 2016 and $2.80/MMbtu for 2017.
In September 2015, total marketed production of gas hit a record high of 80.2 bcfd before declining the following month, according to EIA’s latest data. EIA estimates that marketed gas production averaged 79.1 bcfd in 2015, a 6% increase from 2014 levels.
EIA projects production growth will slow to 0.7% in 2016, partly in response to lower prices and declining rig activity. With higher prices in 2017, and as new consumption from the industrial sector and more export capacity comes online, EIA projects production will pick up slightly.
EIA’s forecast of US total gas consumption averages 76.6 bcfd in 2016 and 77.2 bcfd in 2017 compared with 75.5 bcfd in 2015. Much of the increase comes from the industrial sector, especially the fertilizer and chemical industries.
Slight declines in gas consumption in the electric power sector are expected as gas prices rise. Despite the small decreases, power-sector consumption remains at a historically high level throughout the forecast and continues to be the largest component of gas consumption. Gas consumption in the residential and commercial sectors is projected to increase in 2016 and 2017, reflecting slightly higher heating demand in those years.
By mid-2017, EIA expects the US to be a net exporter of gas for the first time since 1955. The forecast reflects increases in gas exports by pipeline to Mexico because of growing demand from Mexico’s electric power sector. Exports of LNG also increase as Cheniere’s Sabine Pass LNG liquefaction plant on the US Gulf Coast enters service in 2016.