The U.S. Energy Information Administration’s (EIA) latest Short-Term Energy Outlook (STEO) is predicting that natural gas consumption will reach record levels in 2022.
The record-breaking consumption levels can be attributed to several factors, but the EIA identifies two key conditions that are driving gas usage: an exceptionally warm summer and low coal use for power generation.
Natural gas usage is predicted to grow in every end use in 2022, particularly in electrical power generation. Overall, the EIA expects consumption of gas to rise to an average of 86.6 billion cubic feet a day (Bcf/d) in 2022, an 3.6 Bcf/d hike from 2021.
The U.S. electric power sector will see the largest growth of all sectors, climbing by 4 percent in 2022 compared to 2021. Growth in the electrical power sector was expected given the record-breaking high temperatures endured in the summer of 2022. An additional factor that was expected to have an impact on natural gas usage, the price of natural gas, did not have the expected effect. Natural gas prices have risen sharply in the last year given the current geopolitical situation. Average prices at the Henry Hub rose by $2.98 MMBtu compared to 2021, reaching $6.41 in the first eight months of this year.
What makes this interesting is the continued use of natural gas while prices were elevated. Traditionally, capable power generation plants will shift fuels from natural gas to coal in volatile market conditions. However, domestic coal storages fell to the lowest levels since 1978 in 2021, the lack of surplus leaving natural gas as the preferred option. In 2022, coal-fired electricity production matched the previous year’s figures, accounting for 21 percent of electricity generation, but is expected to fall in 2023 to just 19 percent.
The rise of natural gas is not expected to carry over into next year. The EIA estimates that overall natural gas usage will fall by 1.9 percent in 2023, as more renewable energy sources are brought online for use. Natural gas production, which has grown steadily after a slight pullback in 2020, is expected to continue to advance into 2023.