Extreme temperatures are causing federal energy researchers to significantly adjust forecasts for Henry Hub natural gas spot prices.
In its August Short-Term Energy Outlook, the Energy Information Administration forecast Henry Hub spot prices to average $3.59 per million British thermal units (MMBtu), a 40-cent increase from last month’s report.
“High demand for electricity generation because of record-high temperatures in June led to strong consumption of natural gas in the electric power sector, supporting higher prices into July and August,” according to the Aug. 10 outlook.
In addition, the EIA revised its forecast for Henry Hub natural gas spot prices to $3.71/MMBtu in the third quarter of 2021 and $3.42/MMBtu for all of 2021. Last month’s report predicted an average of $3.22/MMBtu in the third and fourth quarters.
EIA expects, however, that Henry Hub spot prices will drop to $3.08/MMBtu in 2022—compared to $2.03/MMBtu last year—amid rising U.S. natural gas production.
As a result of the expected increase in spot prices, EIA forecasts a smaller share of electric power generation to come from natural gas—36% in 2021 and 37% in 2022, down from 39% in 2020.
Planned additions to wind and solar generating capacity this year and next will boost electricity generation from these sources. EIA expects 17.6 gigawatts of new wind capacity to come online in 2021 and 6.3 GW in 2022. Additional capacity from utility-scale solar is forecast at 16.2 GW in 2021 and 16.6 GW for 2022.
In addition, EIA forecasts about 5 GW of small-scale solar capacity—systems less than 1 megawatt—will come online in both 2021 and 2022.
Retail sales of electricity are expected to rise by 2.7% in 2021 after falling by 3.9% in 2020, and the industrial sector is expected to see a 5.3% increase in electricity consumption due to greater economic activity. Commercial sector sales will grow 2.2% in 2021 as many people continue to work from home.
“Residential electricity sales will grow by 1.5% in 2021 as a result of colder temperatures in the first quarter of 2021 compared with the first quarter of 2020, and because of hot temperatures in June,” according to the report.