EIA lowers natural gas price forecasts again

The forecast for natural gas spot prices in the U.S. in 1Q23 has fallen 11.2% as milder temperatures have led to a decline in natural gas consumption. The latest Short Term Energy Outlook from the EIA lowered previous forecast of $3.40/MMBtu to $3.02/MMBtu, because of the warmer temperatures. 

The EIA also lowered its forecast for natural gas spot prices 1Q24 from $4.04/MMBtu to $3.89/MMBtu for the same reasons.

“A lot less natural gas was consumed in the U.S. residential and commercial sectors than we generally expect in January and February,” said EIA Administrator Joe DeCarolis. “The warmer weather in most of the country means homes and business haven’t been running their heating systems as much as they normally do during those months.”

Natural gas consumption in California has not been following the same trend as the rest of the country. There, colder-than-normal weather has led to more natural gas consumption. EIA expects the Pacific region’s natural gas prices will come down after this cold snap.

The agency noted that preliminary data from the National Oceanic and Atmospheric Administration for January and February show the first two months of 2023 may be close to the warmest on record for that period in data going back to 1895. In response to warmer temperatures, demand for gas for heating has fallen.

“We expect U.S natural gas consumption to average 99.1 billion cubic feet per day (Bcf/d) in the first quarter of 2023 (1Q23), down 5% from 1Q22,” the EIA said. “The largest decline is in residential and commercial consumption, which we expect will be 11% less in 1Q23 than in 1Q22.”

Because of the decline in consumption, the EIA predicts that the United States will close the withdrawal season at the end of March with more than 1.9 trillion cubic feet of natural gas in storage, 23% more than the five-year average and 27% more than its previous forecast issued in January.