00/MMBtu

In the February Short-Term Energy Outlook (STEO), the U.S. Energy Information Administration (EIA) predicts that the U.S. benchmark Henry Hub natural gas spot price will average higher in 2024 and 2025 compared to 2023. However, the forecast suggests that prices will continue to remain below $3.00 per million British thermal units (MMBtu).

The EIA attributes the projected increases in natural gas prices to a faster growth in demand compared to supply in 2024. In 2022 and 2023, the supply of natural gas in the U.S. surpassed the demand. However, in 2024, the EIA expects a shift in this trend, with natural gas demand projected to increase by 2.3 billion cubic feet per day (Bcf/d), while supply remains relatively flat. In 2025, both supply and demand are expected to grow at similar rates, leading to inventories building up, as supply is predicted to slightly exceed demand.

As of January 2024, U.S. natural gas inventories were 7% higher than the five-year average for that time of year. The EIA anticipates that inventories will continue to remain high relative to the previous five-year average throughout 2024 and 2025.

The EIA forecasts that the majority of the increase in U.S. natural gas supply will come from domestic production of associated natural gas, particularly from the Permian region in western Texas and eastern New Mexico. However, this projection is contingent on U.S. crude oil production meeting expectations. If crude oil production falls short, natural gas production may also be affected.

The growth in natural gas demand in the coming years will be driven by domestic consumption in 2024 and exports in 2025. Sectoral changes in natural gas consumption largely depend on weather conditions. Natural gas-fired power plants, which account for approximately 40% of U.S. electricity generation, are influenced by the demand from heating and air-conditioning equipment. The residential and commercial sectors, too, are affected by colder winter temperatures that increase direct natural gas consumption for heating purposes.

The mix of energy sources used to generate electricity also impacts natural gas consumption within the electric power sector. The addition of solar- and wind-powered generators may potentially reduce the need for natural gas-fired power plants. Therefore, changes in the timing and magnitude of new solar and wind capacity installations can affect the forecast for natural gas consumption in this sector.

U.S. natural gas exports, of which 57% is liquefied natural gas (LNG), are dependent on the completion schedule of new LNG export terminals. In 2023, the U.S. exported 20.8 Bcf/d of natural gas, and by the end of that year, 11.4 Bcf/d of baseload nameplate LNG export capacity had been built. The EIA expects an additional 5.3 Bcf/d of new LNG export capacity to be added by the end of 2025.

The operational dates of three new export terminals in Texas and Louisiana, namely Golden Pass, Corpus Christi Stage III, and Plaquemines LNG, are expected to impact the LNG export forecast and overall natural gas demand expectations should there be any changes to their schedules.

The EIA's forecast takes into account the recent announcement by the U.S. Department of Energy (DOE) to pause determinations on LNG export applications to countries without a free trade agreement. However, this pause will not affect capacity additions through 2025 as these projects have already been fully authorized and are currently under construction.

As natural gas prices in Europe and Asia remain relatively high compared to U.S. prices, the EIA assumes that U.S. LNG will continue to replace natural gas exported from Russia to Europe via pipelines. Due to limited global LNG liquefaction capacity additions in the next two years, there is a growing demand for flexible LNG supplies, primarily from the United States, to meet the incremental growth in global demand.

Overall, the EIA anticipates higher natural gas prices in the U.S. in 2024 and 2025, driven by increased demand and supply dynamics. However, prices are expected to remain below $3.00/MMBtu during this period.