It should come as no surprise last winter’s extreme cold temperatures had an impact on natural gas consumption and pricing. The Energy Information Administration (EIA) has released the Short Term Energy Outlook (STEO) for February 2014, which details the impact on the U.S. natural gas market.
Natural gas demand had been heavy due to brutally cold temperatures. According to the February STEO report, January’s extremely cold temperatures led to new record-high withdrawals of natural gas from storage, this comes in a season that experienced larger-than-normal storage withdrawals.
Working natural gas storage withdrawals in January exceeded 200 billion cubic feet (Bcf) for three weeks of the month. Stocks were lower than last winter, and 556 Bcf less than the five-year (2009-13) average for this time of year. So, for the second month in a row, the forecast end-of-March 2014 working inventory has been revised downward to reflect very high withdrawals. The EIA projected inventories ending the heating season at 1,331 Bcf, the lowest end-of-season level since 2008.
National gas spot prices averaged $4.71/MMBtu (million British Thermal Unit) at the Henry Hub in January, an increase of $0.47/MMBtu from December’s gas spot prices. This increase in price is attributed to the extreme cold. A reversal of the price increases was projected by the end of the winter, and forecast Henry Hub natural gas prices average $4.17/MMBtu in 2014 and $4.11/MMBtu in 2015.
Residential natural gas prices were expected to average $10.16 per thousand cubic feet (Mcf) this winter, an increase of of 4.2 percent from last winter when natural gas consumers spent an average of $603 on their heating bills.
This season, consumers were expected to spend $649 on natural gas heating for the winter months, a 7.7 percent increase.
Total natural gas consumption is expected to average 70.2 Bcf/d in 2014, which is higher than January’s STEO forecast and considered a result of January’s increase in consumption. The projected year-over-year increases in natural gas prices contribute to declines in natural gas used for electric power generation. In 2015, total natural gas consumption is projected to increase by 0.8 Bcf/d with growth in use by the industrial and electric power sectors. As well, EIA expects natural gas consumption in the power sector to increase to 22.6 Bcf/d in 2015 with the retirement of some coal plants.
The EIA expected prices to fall after the peak winter heating season to close to Henry Hub prices outside of the cold weather months. The forecast was for growth at an average rate of 2.2 percent in 2014 and 1.2 percent in 2015.
Trends toward increased domestic production, which has replaced pipeline imports from Canada, as well as increased exports to Mexico, will continue through 2015. Net imports are projected to be at the lowest level since 1987.
Over the longer term, the EIA Annual Energy Outlook 2014 projects natural gas production in the U.S. will continue to grow at an impressive pace. As reported by James Stafford of Oilprice.com, from an interview with the EIA, current output is close to 70 billion cubic feet a day and is expected to reach over 100 billion cubic feet per day by 2040. The trend is likely to continue without hitting a geologic “peak”.
Even with high demand, increased production should lend itself to maintaining favorable supplies and pricing. This is good news for the consumer and the economy.