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EIA Short-Term Energy Outlook

September 7, 2011


U.S. Electricity Consumption.  Although cumulative cooling degree-days for 2011 through August for the entire United States were just 2.8 percent higher than the same period in 2010, some regions experienced extreme weather during the past few months.  Record heat in Texas has led to record-setting power demand while Hurricane Irene recently caused widespread power outages in the Northeast.  Overall, EIA expects relatively flat growth this year for U.S. retail sales of electricity to the residential sector.

Electricity sales to the industrial sector were 3.0 percent higher during the first half of 2011 compared with the same period last year.  However, a projected slower recovery in manufacturing for the remainder of this year should translate to lower year-over-year growth in industrial electricity sales of 0.6 percent during the second half.  EIA expects total consumption of electricity during 2011 to grow by 0.6 percent from last year’s level and by 0.2 percent in 2012 (U.S. Total Electricity Consumption Chart).

U.S. Electricity Generation.  A large number of unplanned nuclear plant outages during the spring of 2011 led to the lowest second-quarter level of nuclear generation since 1999.  EIA expects that total nuclear generation for 2011 will be 3.4 percent lower than last year’s level.  In contrast, the share of generation fueled by natural gas continues to increase, spurred by relatively low fuel costs compared with coal and continued warm summer temperatures.  EIA expects the fuel share for natural gas to rise from 23.8 percent in 2010 to 24.2 percent this year and 24.9 percent in 2012 (U.S. Electricity Generation by Fuel, all Sectors Chart).

U.S. Electricity Retail Prices.  Retail prices of electricity to the residential sector during the first six months of this year were generally higher than the same period in 2010.  Growth in residential electricity prices should moderate during the second half.  EIA expects average U.S. residential electricity prices to increase by 2.3 percent in 2011 and by 0.6 percent in 2012 (U.S. Residential Electricity Prices Chart).

Natural Gas

U.S. Natural Gas Consumption.  Projected natural gas consumption for electric power generation fell from 29.7 Bcf/d in July to 29.2 Bcf/d in August, as the extreme temperatures (411 cooling degree-days in July) receded somewhat (to 350 cooling degree-days in August). Hurricane Irene, later downgraded to Tropical Storm Irene as it moved up the East Coast, brought wind, rain, and power outages near the end of the month.

EIA expects that total natural gas consumption will grow by 1.8 percent to 67.3 billion cubic feet per day (Bcf/d) in 2011 (U.S. Total Natural Gas Consumption Chart).  Growth in the industrial and electric power sectors accounts for most of the growth in total consumption, with expected increases in 2011 to 18.5 Bcf/d (2.1 percent) and 20.7 Bcf/d (2.4 percent), respectively.  Projected total natural gas consumption increases 0.6 percent in 2012 to 67.7 Bcf/d.

U.S. Natural Gas Production and Imports.  Marketed natural gas production is expected to average 65.8 Bcf/d in 2011, a 4.0 Bcf/d (6.4 percent) increase over 2010.  The majority of this growth is centered in the onshore production in the Lower 48 States, which will more than offset steep projected declines in the Federal Gulf of Mexico (GOM).  Forecast GOM production falls 0.9 Bcf/d (13.9 percent) in 2011. EIA expects that overall production will continue to grow in 2012, but at a slower pace, increasing 1.1 Bcf/d (1.7 percent) to an average of 66.9 Bcf/d.

Drilling activity has been resilient despite lower natural gas spot and futures prices.  According to Baker Hughes, the August 26 rig count had rebounded to 898 active drilling rigs targeting natural gas, up from 866 on May 20.  If drilling continues to increase, production could grow more than expected in 2012.

Growing domestic natural gas production has reduced reliance on natural gas imports and contributed to increased exports.  EIA expects that pipeline gross imports of natural gas will fall by 4.1 percent to 8.7 Bcf/d during 2011 and by another 3.8 percent to 8.4 Bcf/d in 2012.  Projected U.S. imports of liquefied natural gas (LNG) fall from 1.2 Bcf/d in 2010 to 1.0 Bcf/d in both 2011 and 2012.  Pipeline gross exports to Mexico and Canada are expected to average 4.1 Bcf/d in 2011 and 4.2 Bcf/d in 2012, compared with 3.1 Bcf/d in 2010.

U.S. Natural Gas Inventories.  On August 26, 2011, working natural gas in storage stood at 2,961 Bcf, 137 Bcf below last year’s level in late August (U.S. Working Natural Gas in Storage Chart).  EIA expects that inventories, though currently lower than last year, will come close to last year’s levels towards the end of the 2011 injection season, reaching 3.74 Tcf at the end of October 2011.

U.S. Natural Gas Prices.  The Henry Hub spot price averaged $4.05 per MMBtu in August 2011, 37 cents lower than the July 2011 average (Henry Hub Natural Gas Price Chart).  This month’s Outlook lowers the 2011 forecast by 4 cents to $4.20 per MMBtu and lowers the 2012 forecast by 11 cents to $4.30 per MMBtu.  The increase in price from 2011 to 2012 reflects some tightening in supply as production growth slows in 2012.

Uncertainty about natural gas prices is lower this year compared with last year at this time (Market Prices and Uncertainty Report).  Natural gas futures for November 2011 delivery (for the 5-day period ending September 1, 2011) averaged $4.07 per MMBtu, and the average implied volatility was 34 percent.  The lower and upper bounds for the 95-percent confidence interval for November 2011 contracts are $3.16 per MMBtu and $5.26 per MMBtu.  At this time last year, the November 2010 natural gas futures contract averaged $4.07 per MMBtu and implied volatility averaged 48 percent.  The corresponding lower and upper limits of the 95-percent confidence interval were $2.84 per MMBtu and $5.83 per MMBtu