EIA expects volatile natural gas prices this winter because of uncertainty about weather

After extreme cold in February led to lower-than-average natural gas storage levels in the United States through the summer, concerns about winter weather are contributing to volatile natural gas prices as the winter heating season begins. In its November Short-Term Energy Outlook (STEO), the U.S. Energy Information Administration (EIA) estimates that U.S. natural gas storage levels had built to within 3% of the previous five-year average at the end of October.

“Mild weather has limited natural gas consumption and helped bring our storage levels closer to average in recent weeks, but cold winter weather could continue to put upward pressure on prices,” said EIA Acting Administrator Steve Nalley. “Winter temperatures will be the key driver of natural gas demand, inventories, and ultimately prices.”

Despite relatively high natural gas prices, the U.S. electric power sector continues to use significant amounts of natural gas for generation. In addition, EIA estimates that U.S. natural gas exports of liquefied natural gas averaged 9.8 billion cubic feet per day (Bcf/d) in October, which is 37% above the October 2020 level, and are essentially at capacity. U.S. natural gas exports will most likely remain close to capacity for the remainder of this year and in 2022 to meet global demand.

Other highlights from this month’s STEO include:

• Spot prices for Brent crude oil averaged $84 per barrel in October, a $9 per barrel increase from September. EIA expects prices to average $82 per barrel in the fourth quarter and $72 per barrel in 2022. “With high crude oil prices, production should increase in the United States and overseas in 2022, as growth in global demand slows,” Nalley said.
• EIA estimates 18% more coal will be used to generate electricity in the United States in 2021 than in 2020, breaking a long-standing trend. The U.S. electric power sector has used more coal in reaction to significantly higher natural gas prices. EIA also estimates that coal exports will increase 29% this year because of similar dynamics in global electricity generation. “Coal became more economically competitive as global demand increased for natural gas this year,” Nalley said.