U.S. Natural Gas Consumption

EIA expects that natural gas consumption will average 69.7 Bcf/d in 2012, an increase of 3.2 Bcf/d (4.8 percent) from 2011. Large gains in electric power use in 2012 more than offset declines in residential and commercial use. Projected consumption of natural gas in the electric power sector averages 25.4 Bcf/d in 2012, 22 percent higher than in 2011, 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 during 2012 reached a record level of 35.3 Bcf/d in July 2012, when electricity demand for air conditioning was highest.

Projected total natural gas consumption decreases by 0.5 Bcf/d (0.7 percent) in 2013. Expected declines in the electric power sector offset increases in residential, commercial, and industrial consumption. A forecast of near-normal weather during the upcoming winter (but colder than last year's abnormally warm winter) drives 2013 increases in residential and commercial consumption of 11.5 percent and 10.2 percent, respectively. Although projected higher natural gas prices contribute to a 11.2-percent decline in forecast natural gas consumption in the electric power sector in 2013, consumption in the power sector next year is still expected to be about 1.8 Bcf/d higher than 2011 levels and high by historical standards. The consumption forecast for 2012 and 2013 is largely unchanged from last month's Outlook.

U.S. Natural Gas Production and Imports

Total marketed production of natural gas grew by 4.8 Bcf/d (7.9 percent) in 2011. EIA forecasts that total marketed production growth will slow in 2012, and that 2013 production will be near the 2012 level. So far during 2012, production has fluctuated slightly around an average of 69 Bcf/d, in contrast to the strong upward growth seen between 2009 and 2011. EIA expects some small declines in production in the coming months, related to recent drops in the rig count. According to Baker Hughes, the natural gas rig count was 424 as of November 2, 2012, compared with 811 at the start of 2012. EIA expects that growth in associated gas from crude oil, as well as continued drilling in liquids-rich areas, will help offset the decline in drilling activity. This month's 2013 forecast represents a downward revision of 0.4 Bcf/d from last month's Outlook.

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 early this year 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 an increase of 0.1 Bcf/d in (1.3 percent) in pipeline gross imports in 2013. Pipeline gross exports grew by 1.0 Bcf/d (33 percent) in 2011, driven by increased exports to Mexico, but are expected to remain mostly flat in 2012, and grow by 0.1 Bcf/d in 2013.

Liquefied natural gas (LNG) imports are expected to fall by about one-half in 2012 from the year before. EIA expects that an average of slightly less than 0.5 Bcf/d will arrive in the United States (mainly at the Elba Island terminal in Georgia and the Everett terminal in New England) both 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. Higher prices for LNG, particularly in Asian markets, have made the United States a market of last resort for LNG suppliers. Even as natural gas prices are expected to rise in the United States next year, prices in Japanese and Korean markets have historically been much higher.

U.S. Natural Gas Inventories

Working natural gas inventories are at a record high level. As of October 26, 2012, according to EIA's Weekly Natural Gas Storage Report, working inventories totaled 3,908 Bcf, which is 56 Bcf greater than the previous weekly high of 3,852 Bcf on November 18, 2011. Inventories are 136 Bcf greater than last year's level and 259 Bcf above the five-year average. EIA expects that inventory levels at the end of October 2012 will total 3,935 Bcf, and injections are likely to continue for a few weeks in November. Because of very high inventories at the start of the summer injection season this year, working inventories have remained high and weekly stock builds have been below both the five-year average and last year's level since April 2012, with a few exceptions. The projected increase of 1,458 Bcf in working gas inventory during the 2012 injection season (from the beginning of April through the end of October) would be the smallest build since 1991. Last year's inventory build from April through October, for comparison, was 2,224 Bcf.

U.S. Natural Gas Prices

Natural gas spot prices averaged $3.31 per MMBtu at the Henry Hub in October 2012, up $0.46 per MMBtu from the September 2012 average and $0.25 per MMBtu less than the October 2011 average. EIA expects the Henry Hub natural gas price will average $2.77 per MMBtu in 2012 and $3.49 per MMBtu in 2013, increases of $0.06 per MMBtu in 2012 and $0.14 per MMBtu in 2013 from last month's Outlook.

Natural gas futures prices for February 2013 delivery (for the five-day period ending November 1, 2012) averaged $3.86 per MMBtu. Current options and futures prices imply that market participants place the lower and upper bounds for the 95-percent confidence interval for February 2013 contracts at $2.76 per MMBtu and $5.39 per MMBtu, respectively. At this time last year, the February 2012 natural gas futures contract averaged $3.97 per MMBtu and the corresponding lower and upper limits of the 95-percent confidence interval were $2.89 per MMBtu and $5.45 per MMBtu.