In our June 2022 Short-Term Energy Outlook (STEO), we forecast that U.S. natural gas spot prices will increase again this month and then remain high through the rest of 2022. Natural gas spot prices at the U.S. Henry Hub benchmark in Louisiana averaged $8.14 per million British thermal units (MMBtu) in May 2022, and we expect the Henry Hub price to average $8.71/MMBtu this summer (June through August).
We expect U.S. natural gas prices to remain relatively high in 2022 because of lower-than-average natural gas inventories resulting from factors affecting both supply and demand.
Consumption of natural gas in the U.S. electric power sector has remained high despite high natural gas prices. We expect that consumption of natural gas in the U.S. electric power sector will average 0.9 billion cubic feet per day (Bcf/d) more in 2022 than in 2021, even though we expect the Henry Hub price to be $3.49/MMBtu higher. In the U.S. electric power sector, power plants have tended to consume more coal as natural gas prices increase. However, this fuel substitution has been relatively limited in recent months because of supply constraints in the coal market and historically low coal stockpiles.
In addition, we expect that U.S. exports of liquefied natural gas (LNG) will remain high during this summer, partly as a result of Russia’s full-scale invasion of Ukraine. So far this year, 75% of total U.S. LNG cargos have gone to Europe, compared with 34% in 2021. High international natural gas prices may also lead to more U.S. LNG exports.
We expect U.S. production of dry natural gas to increase in 2022, but not as much as demand. We expect dry natural gas production will average 96.5 Bcf/d in 2022, which is 3.2% (or 3.0 Bcf/d) higher than the 2021 average.
Because demand for natural gas has outpaced production, natural gas inventories have remained low. Natural gas inventories started the 2022 summer injection season (April through October) 17% below the five-year (2017–21) average. We expect that natural gas storage levels will be 9% below the five-year average at the end of October, the beginning of this coming heating season.
We forecast that natural gas prices will fall in early 2023 because of more domestic natural gas production, less LNG export and domestic natural gas demand growth, and more natural gas placed in storage.
Principal contributors: Kristen Tsai, Corrina Ricker