U.S. Natural Gas Consumption.  Total natural gas consumption is about 0.5 Bcf/d higher in this forecast than in last month's Outlook, averaging 64.9 Bcf/d and 64.6 Bcf/d in 2010 and 2011, respectively (Total U.S. Natural Gas Consumption Growth Chart ).  Projected consumption grows by an average 2.4 Bcf/d (3.8 percent) in 2010 led by strong growth in the electric power and industrial sectors.  Forecast natural gas consumption in the electric power sector increases by an average 1.0 Bcf/d (5.5 percent) in 2010 over last year, driven primarily by higher electricity demand.  EIA's projected natural-gas-weighted industrial production index (a measure of industrial activity in natural-gas-intensive industries) increases by 6.7 percent in 2010, leading to a 1.0 Bcf/d (6.1-percent) increase in natural gas consumption in the industrial sector.

Projected natural gas consumption falls slightly in 2011 as forecast growth in the industrial sector slows to 0.2 Bcf/d.  This growth is more than offset by the projected 0.5 Bcf/d decline in natural gas consumption in the electric power sector.

U.S. Natural Gas Production and Imports.  EIA expects total marketed natural gas production to increase by 1.2 Bcf/d (2.1 percent) to 61.2 Bcf/d in 2010, an upward revision of 0.5 Bcf/d from last month's Outlook.  Natural gas production grew steadily over the first 3 months of this year as the number of working natural gas rigs reported by Baker-Hughes increased from 759 to 941.  The production forecast was revised upwards as the number of working rigs continued to increase to almost 970 at the end of May.

The increase in production is partially offset by new estimates of shut-in production based on NOAA's latest hurricane forecast.  Tropical storm activity and the accompanying production outages are expected to be significantly higher this year than last year.  EIA estimates the median outcome for projected total shut-in production due to tropical storms from June through November 2010 is 166 Bcf compared with an estimated 19 Bcf shut-in production last year (2010 Outlook for Hurricane-Related Production Outages in the Gulf of Mexico ).

Forecast natural gas marketed production in 2011 falls almost 0.5 Bcf/d to 60.8 Bcf/d in 2011.  This forecast includes EIA's preliminary estimates of the total cumulative reductions in output of natural gas from the deepwater Gulf of Mexico of 8 Bcf in 2010 and 74 Bcf in 2011 because of the 6-month drilling moratorium.  The reductions in natural gas production increase from a monthly average of about 0.03 Bcf/d in September 2010 to 0.24 Bcf/d by December 2011.

Projected liquefied natural gas (LNG) imports increase by 0.27 Bcf/d (22 percent) and 0.16 Bcf (11 percent) in 2010 and 2011 respectively.  Despite this growth, high prices in the European and Asian markets relative to the United States will continue to draw LNG cargoes, with the United States serving as a secondary market.  Forecast pipeline imports in 2010 have been increased by 0.29 Bcf/d from last month's Outlook.  Pipeline imports are expected to play an important role in offsetting forecast hurricane-related production outages in the Gulf of Mexico.

U.S. Natural Gas Inventories.  On May 28, 2010, working natural gas in storage was 2,357 Bcf (U.S. Working Natural Gas in Storage Chart ), 306 Bcf above the previous 5-year average (2005–2009) and 38 Bcf above the level during the corresponding week last year.  EIA expects working gas inventories at the end of October 2010 to be about 3,805 Bcf, slightly below the level reached at the end of October last year and the peak inventory of 3,837 Bcf reached on November 27, 2009.

U.S. Natural Gas Prices.  Sustained low natural gas prices this summer are expected to contribute to a decline in natural gas drilling activity over the next several months.  As a result, the current 2011 forecastof higher prices comes as production begins to decline later this year and next.  The projected Henry Hub spot price averages $4.49 per MMBtu in 2010 and $5.06 per MMBtu in 2011 (Henry Hub Natural Gas Price Chart ).

Uncertainty over future natural gas prices is lower this year compared with last year at this time.  Natural gas futures for August 2010 delivery for the 5-day period ending June 3 averaged $4.47 per MMBtu, and the average implied volatility over the same period was 44 percent.  This produced lower and upper bounds for the 95-percent confidence interval of $3.22 and $6.20 per MMBtu, respectively.  At this time last year the natural gas August 2009 futures contract averaged $3.87 per MMBtu and implied volatility averaged almost 71 percent.  This rendered the lower and upper limits of the 95-percent confidence interval were at $2.21 and $6.76 per MMBtu.

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