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Glut no more for US gas

North American consumers will pay more for their gas this winter as stocks build more slowly and demand rises

US household spending for natural gas, heating oil, electricity, and propane will rise by 38%, 26%, and 22% respectively between October this year and March 2017, compared with the same period last year, according to the Energy Information Administration (EIA).

Demand has already started to rise. High temperatures throughout the summer-combined with cheap natural gas prices-have led to record levels of consumption in the power sector. On 21 July it reached its highest-ever daily level, at 40.9bn cubic feet per day. Natural gas consumption for the whole of July was 4.12bn cf/d higher than a year earlier, reaching 71.11bn cf/d. That's a rise of almost 6%. Since then, average monthly gas consumption has been higher than year-earlier levels in every month. In December, US consumption will be around 10% higher than at the same time last year, according to the EIA, reaching 92.6bn cf/d.

Meanwhile, US gas production has been falling, compared with last year's numbers, since March, pressured by a prolonged period of low prices. Output fell from 79.7bn cf/d in September 2015 to 76.5bn cf/d in July this year.

It will average 77.5bn cf/d in 2016, the EIA says, a fall of 1.6% from 2015 levels and the first annual decline since 2005. Next year, production will rebound, rising by 3.7bn cf/d to 81.2bn cf/d.

Meanwhile, US gas inventories ahead of winter are building at a slower pace than last year. Throughout September average weekly gas stock builds were around 55bn cf, according to the EIA-about half their level at the same time last year. Total US gas in underground storage stood at 3.76 trillion cf at the beginning of October, just 3% higher than year-earlier levels-a rise of 125bn cf. In March, inventories were 39% higher than a year earlier, at 2.479tn cf.

This means higher prices. Front-month Henry Hub futures have already risen, and sat at about $3.30 per million British thermal units at the beginning of October. The forward curve shows a clear contango. Prices for delivery in March 2017 were trading around $3.60/m Btu. The EIA expects the prices to average $2.59/m Btu this year and $3.16/m Btu in 2017.

Growing markets: US gas-demand forecasts (bn cf/d) Source: EIA
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