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EIA’s Adjusted Outlook Lowers Natural Gas Prices by More Than 40 Percent

The Department of Energy’s Energy Information Administration has revised its short-term outlook on natural gas prices, lowering them from its October forecast.

In a Short-Term Energy Outlook supplement, Market Drivers and Other Factors Affecting Natural Gas Prices, the EIA said it now expects wholesale natural gas prices during the last quarter of 2022 and the first quarter of 2023 to average more than 40 percent lower than the agency forecast in October.

“The U.S. natural gas market in early February 2023 is much different from what we forecast when we published our STEO Winter Fuels Outlook in October 2022, and reflects the significance of price volatility in the current industry,” the EIA said in the report.

The significantly lower prices emerged even though the EIA said it made only “very minor” adjustments in its forecast, an increase of less than 0.5 percent in consumption that was offset by an increase of nearly 1 percent in natural gas production.

In one example of the changes in the natural gas market, the EIA cited temperatures across the United States in January that were milder than any since 2006, which factored into a reduction in the agency’s February Henry Hub natural gas price forecast by more than 30 percent or by almost $1.50 per million British thermal units (MMBtu).

The EIA is still expecting continued robust growth in natural gas production. The agency expects 92 percent more dry natural gas to be produced in the United States in 2023 than in 2003 and sees production continuing to grow in 2024.

Higher production lowered prices and stimulated demand, which has grown by more than 40 percent over the past two decades. Most of the growth in consumption came from the electric power sector as generators switched from coal to lower cost gas.

By the end of the year, the EIA expects natural gas consumption by electric utilities will have grown 130 percent from 2003. Commercial and industrial gas consumption will each have grown slightly more than 10 percent over the same time period. And residential gas consumption will actually shrink slightly.

But the market for natural gas as an electric generation fuel is changing. Renewables have begun to displace some of the share of natural gas used in generation, and over time the EIA said it expects the shift in generation sources will affect natural gas use with some of those effects becoming clear in the summer of 2023 with additional effects in the summer of 2024.

The agency noted that the deployment of natural gas combined-cycle gas turbine plants is slowing after decades of growth. Developers and project planners plan to add about 5 gigawatts of new CCGT capacity in 2023, but after that, “the number of confirmed new projects drops considerably.”

Meanwhile, developers plan to add about 38 GW of new renewable energy capacity from October 2022 to September 2023, including 23 GW of solar photovoltaics, 7 GW of wind, and about 8 GW of battery storage.

The EIA forecasts that solar and wind generation will account for 18 percent of U.S. generation in 2024, up from 16 percent this year.

Rising natural gas production has also freed up supplies for international trade, resulting in significant growth in U.S. exports, particularly of liquefied natural gas (LNG), the EIA noted.

In 2003, the United States was a natural gas importing country with imports accounting for about 17 percent of U.S. gas supplies. The United States began exporting more natural gas than it imports in 2017, and this year the EIA expects that almost 20 percent of U.S. natural gas production and imports will be exported.

The EIA also noted that although its supplemental STEO focuses on the next two years, “the same fundamental dynamics we discuss in this report will continue to influence natural gas markets well into the future.