The EIA’s natural gas consumption forecasts
The EIA forecasts that US natural gas consumption will increase in 2015 as a result of increased demand from industrial and electric power sectors. The EIA forecasts that total natural gas consumption will average 74.3 Bcf/d (billion cubic feet per day) in 2015 and 75.2 Bcf/d in 2016, compared with an estimated 73.3 Bcf/d in 2014.
Demand from the power sector is forecasted to average 23.5 Bcf/d in 2015—0.5 Bcf/d higher than previous month’s forecast. It should then grow ~2.6% to 24.1 Bcf/d in 2016.
Industrial consumption should increase by 5.6% and 1.9% in 2015 and 2016, respectively, due to new industrial projects coming online—predominantly in the fertilizer and chemical sectors.
Demand from the residential and commercial sectors should decline in 2015 and in 2016.
Consumption trends this winter
So far this heating season, above-normal temperatures in some parts of the US have dampened the overall natural gas consumption. Bentek Energy reported that US natural gas consumption has averaged 86.9 Bcf/d since November 1. This is 4.8 Bcf/d lower than last year.
As a result of milder temperatures, which have caused a decline in residential and commercial demand, the EIA forecasts that consumption will average 88.1 Bcf/d for the remainder of the heating season versus an estimated 90.9 Bcf/d during the same period in 2014.
Production and consumption trends determine the fate of natural gas prices. Weather is the primary factor that determines consumption trends. Read Part 3 of this series to see how the weather affected prices last week.
Natural gas prices affect the profit margins of gas-weighted producers like Chesapeake Energy (CHK), Range Resources (RRC), EQT (EQT), and Cabot Oil and Gas (COG). All of these companies are part of the Energy Select Sector SPDR ETF (XLE) and make up ~4% of the ETF.