The natural gas consumption forecast
The EIA (U.S. Energy Information Administration) projects that US natural gas consumption will increase in 2015 as a result of increased demand from the industrial and electric power sectors.
Demand from the power sector is forecast to average 23.5 Bcf per day in 2015, 0.5 Bcf per day higher than the EIA’s forecast from last month. Demand is then expected to grow by ~2.6% to 24.1 Bcf per day in 2016.
Industrial consumption is forecast to increase by 5.6% and 1.9% in 2015 and 2016, respectively, due to new industrial projects coming online. Demand will predominantly come from the fertilizer and chemical sectors. Demand from the residential and commercial sectors is projected to decline in 2015 and in 2016.
Consumption trends this winter
As a result of milder temperatures that have caused a decline in residential and commercial demand, the EIA forecasts that consumption will average 88.1 Bcf per day for the remainder of the heating season versus 90.9 Bcf per day during the same period in 2014.
Consumption trends last week
US natural gas consumption has remained relatively flat and temperatures have been close to normal, on average, since the year began. Regionally, however, consumption patterns are slightly different. Compared to last year, consumption was up 4% in the east and down 9% in the West between January 1 to February 20.
This stark difference was driven by regional weather patterns that have also affected storage levels since the beginning of the year. The East pulled 5% more gas from storage than the five-year average, while the West pulled 7% less gas than its five-year average.
As a whole though, storage withdrawals since January 1 are less than last winter’s. This is attributable to higher levels of production and imports.
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 impacted prices last week.
Natural gas prices affect the profit margins of gas-weighted producers including EOG Resources (EOG), Devon Energy (DVN), Southwest Energy (SWN), and EQT Corp. (EQT). Those companies that are components of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) make up ~4.4% of the ETF.