This report examines current conditions and trends in the U.S. natural gas markets. Key market elements examined include prices, consumption, production, imports, and infrastructure. Its share of the power generation market has grown. Liquefied natural gas (LNG) imports hit a record level in 2007, even as import facilities continue to have low utilization rates. Briefly, important developments in natural gas markets include the following:
The growth in natural gas for power generation has contributed to increased consumption and reduced seasonal variation in use because gas-for-power peaks in summer, versus the total natural gas use winter peak. The first quarter 2008 average spot price at Henry Hub increased 20% from the first quarter 2007 to $8.92 per thousand cubic feet (mcf), versus a 6% year-to-year increase from 2006 to 2007. The United States had record LNG imports in 2007, and increased LNG imports appear likely. Prices throughout this integrated market are influenced by demand (which may be influenced by weather, economic conditions, alternative fuel prices, and other factors), supply, and the capacity available to link supply sources and demand loads (transmission and distribution systems). According to EIA figures, average spot prices at Henry Hub increased about 6% between 2006 and 2007. The U.S. Energy Information Administration (EIA) reports producer price data for its wellhead price series. This price remained stable from 2006 to 2007, decreasing by $0.01 to $6.39 per mcf in 2007 (average). Residential consumption increased about 8.2%, primarily due to colder weather than 2006. Net imports (pipeline and LNG) increased almost 10%, to 3,793 Bcf. Interestingly, while some continue to call for more storage because of the growing consumption of natural gas, the decrease in the seasonal swing (through a decrease in the high month volume and an increase in the low month volume) means that less storage may be able to serve the annual cycling needs of the U.S. markets. For the first time, electric power use of natural gas became the largest end-use sector for natural gas. In its Short Term Energy Outlook, EIA forecasts a 1% increase in natural gas use for 2008, relative to 2007. EIA forecasts increased U.S. production in 2008 of almost 3%, primarily from growth in deepwater Gulf of Mexico and unconventional gas production. Recent Developments

Since the end of 2007, several noteworthy developments have occurred in the natural gas markets:
EIA reports natural gas price increases in 2008. For the 2007-2008 heating season (November-March), the average spot price at the wellhead increased more than 30% from the beginning to the end of heating season, to $8.06 per million Btu.
The functioning of the natural gas market in 2007 appeared relatively stable and infrastructure development continued at an appropriate pace. A tighter demand/supply balance for 2008, however, has generated more upward spot price movement in this latest period. From the beginning to the end of the 2007-2008 heating season, the average wellhead price rose more than 30%, according to Energy Information Administration estimates. In the foreseeable future, weather and economic performance appear most likely to influence prices.
Natural gas provided about 22% of U.S. energy requirements in 2007. It will continue to be a major element of the overall U.S. energy market for the foreseeable future. Given its environmental advantages, it will likely maintain an important market share in the growing electricity generation applications, along with other clean power sources.
As Congress seeks to address energy security issues, the increasing importation of liquefied natural gas (LNG) is also a matter deserving careful attention. In 2007, LNG imports reached a record high and plans are to increase this fuel source.
This report provides an update to Congress on recent natural gas market developments and trends that have implications for important energy policy considerations, such as prices, natural gas use for power generation, and liquefied natural gas imports.
From 2006 to 2007, the average wellhead price reported to the U.S. Energy Information Administration (EIA) remained essentially unchanged at $6.39 per thousand cubic feet (mcf), down $0.01. The average citygate price increased about 3% to $6.98 per mcf. Domestic production grew, up about 0.8 trillion cubic feet, and domestic consumption increased more than 1 trillion cubic feet. This was the first increase in end-use consumption since 2004, according to EIA.
Natural gas use for electric power generation increased in 2007 by 10.5% and for the first time became the largest sector for natural gas consumption in the period covered by EIA records. Residential use increased 8.2%, with weather as a major factor. Commercial and industrial consumption also increased, by 6% and 2%, respectively. The industrial growth reversed a decline of 1.5% from 2005 to 2006.
On the supply side, onshore production in areas such as the Rocky Mountains and the Barnett Shales of Texas grew and liquefied natural gas (LNG) imports increased. LNG imports reached a record level of 0.8 trillion cubic feet.
EIA's Short Term Energy Outlook anticipates the Henry Hub spot price increasing almost 20% in 2008, reflecting strong demand, relatively low working gas in storage, and domestic production growth of almost 3%. The Henry Hub spot price did increase about 20% between the first quarter 2007 and first quarter 2008.
This report will be updated. This report supersedes CRS Report RL33714.