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EIA shaves gas consumption decline forecast, even as power sector use softens

Highlights

Q1 gas demand forecast raised 1.3 Bcf/d to 97.86 Bcf/d

Q1 gas marketed production forecast down 190 MMcf/d

Washington — The US Energy Information Administration Jan. 12 raised its natural gas consumption forecasts for the first two quarters of 2021, even as it continued to predict rising gas prices will help drive consumption declines for the fuel source through 2022.

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The agency, in its January Short-Term Energy Outlook, raised its gas consumption estimates by 1.3 Bcf/d to 97.86 Bcf/d for Q1, and by 1.54 Bcf/d to 65.84 Bcf/d for Q2. But the overall trend is for declines; after averaging 83.06 Bcf/d in 2020, US gas consumption is expected to drop to 80.73 Bcf/d on average in 2021 and 79.03 Bcf/d in 2022, the EIA outlook said.

In a statement accompanying the report, EIA Administrator Linda Capuano said the 2.5% decline in gas consumption in 2019 and expected declines through 2022 are "primarily related to rising natural gas prices that make natural gas less economic for generating electricity." The agency forecast the average cost of gas for generation to rise by 41% to an average of $3.35/MMBtu in 2021, about the same price as in 2017.

Because of reduced gas production, EIA expected Henry Hub natural gas spot prices to increase by nearly one dollar in 2021, averaging $3.01 MMBtu for the full year, Capuano said. That will curb power-sector gas use as other fuel sources become more competitive, she added. The average Henry Hub price is forecast to rise further, to $3.27/MMBtu on average, in 2022.

In the near term, EIA lowered its forecast for Q1 Henry Hub natural gas spot prices by 4 cents to $3.01/MMBtu, but raised its Q2 estimate 1 cent to $2.96/MMBtu.

LNG export growth

The EIA outlook was bullish on exports, predicting growth through 2022 driven by LNG as international gas prices rise and a gradual post-COVID 19 recovery supports global demand, amid high winter demand in Asia and expanding global LNG infrastructure.

"EIA forecasts that 2022 will be the first year that more natural gas is exported from the United States as liquefied natural gas rather than by pipeline," Capuano said. The agency forecast that LNG exports will rise to 8.5 Bcf/d in 2021 and 9.2 Bc/d in 2022.

Production response

As for gas production, EIA said it expected that "recent increases in oil prices and a forecast of rising natural gas prices will contribute to an overall increase in drilling activity in the coming months that will contribute to production growth after the first quarter."

The agency raised its natural gas marketed production estimate for Q2 by 310 MMcf/d to 95.21 Bcf/d, although it lowered its Q1 forecast by 190 MMcf/d to 95.08 Bcf/d. In the early part of the year, it forecast dry gas production to fall to an average of 87.3 Bcf/d in March 2021, before rising through the rest of the forecast period.

For the full year 2021, total marketed production was forecast to average 95.92 Bcf/d, down from 98.26 in 2020, before rising to 97.62 Bcf/d in 2022.

Electricity markets

Recovering from COVID-19-related economic contraction, total US electricity consumption was forecast to rise by 1.5% in 2021 and 1.7% in 2022, and higher gas prices were seen driving up wholesale power prices in much of the country.

"EIA forecasts that annual average wholesale prices in New England will rise 43% this year primarily as a result of expected colder winter weather that contributes to rising natural gas prices," the agency said.

The effects of increased residential electricity use due to the pandemic were seen gradually declining in the first half of 2021, though colder weather was seen pushing up heating use during the first quarter.

EIA forecast that residential electricity sales would grow by 2.4% in 2021 and by 1.6% in 2022 and commercial sector retail electricity sales by 0.9% in 2021 and by 1.8% in 2022. Amid increased industrial production, retail power sales to the industrial sector were seen rising 1.2% in 2021 and by 1.1% in 2022.

In the shifting power mix, the share of gas-fired generation was expected to decline to 36% in 2021 and 24% in 2022, down from 39% in 2020, according to EIA.

By contrast, the share of total generation for renewables other than hydropower will rise to 14% in 2021 and to 16% in 2022, up from 12% in 2020, EIA said.

The forecast did not yet reflect extension of the production tax credit, which helps spur wind development. Congress in late December approved legislation extending the expiring credits.

EIA forecast additions of 15 GW of solar photovoltaic generating capacity in 2021, buoyed by declining prices for PAV modules and increasing prices for natural gas.