More natural gas for power generation leads to record American consumption in 2015 – EIA

Clean Power Plan could create even more demand as utilities move from coal to natural gas

2015 promises to be a record year for American natural gas production, thanks in no small part to high consumption for power generation fueled by low gas prices.

The US Energy Information Administration forecasts natural gas prices to remain below $3 per million British thermal units (MMBtu) through November.

US total natural gas consumption should average 76.5 Bcf/d in 2015 and 76.6 Bcf/d in 2016, compared with 73.5 Bcf/d in 2014, and the EIA projects natural gas consumption in the power sector to increase by 14.4 per cent in 2015 and then decrease by 3.3 per cent in 2016, according to the EIA’s short-term energy outlook.

Industrial sector consumption is projected to increase by 0.9 per cent in 2015 and by 6.4 per cent in 2016, as new industrial projects, particularly in the fertilizer and chemicals sectors, come online late this year and next year, and as industrial consumers continue to take advantage of low natural gas prices.

Natural gas consumption in the residential and commercial sectors is projected to decline in both 2015 and 2016.

Jeff Moore, senior energy analyst at Platts unit Bentek Energy, told attendees Friday  at the 38th annual Coal Marketing Days conference in Pittsburgh that the real driver behind in the rise in demand for natural gas by the power generation sector is the continued low price.

Natural gas power generation is deployed before coal, Moore said, because the Henry Hub price is staying below $3 per MMBtu. The only time natural gas demand for power generation was near current levels was in 2012 when the Henry Hub price dipped to about $2/MMBtu in May.

Efficiencies in horizontal drilling and a drastic increase in the initial production rate from wells in the Marcellus and Utica shales, which is up 158 per cent in the last three years to 6.6 MMCf/d from 2.5 MMcf/d, will push gas production to a new high in 2015, Moore said.

According to Platts, Bentek sees the Henry Hub price rounding out in 2015 at an average of $2.68/MMBtu and increasing to $2.84/MMBtu in 2016. From 2017 to 2020, Bentek expects the Henry Hub price to average $3.38/MMBtu, $3.85/MMBtu, $4.23/MMBtu and $4.42/MMBtu, respectively.