Energy Insights: Residential Natural Gas Prices Expected to Drop

Residential natural gas prices are expected to reach their lowest level since 1977 next year after adjusting for inflation, according to the Energy Information Administration (EIA) Short-Term Energy Outlook. The anticipated decline in residential natural gas prices marks a significant moment for natural gas pricing for consumers. The EIA forecast shows inflation-adjusted natural gas prices drop to $12.75 per Mcf in 2024 and $12.00 per Mcf in 2025, a decline of 17% and 22%, respectively, from 2023 prices.

The reduction coincides with a decline in wholesale commodity prices for natural gas, which is influenced by increasing production and overall supplies outpacing growing demand. According to the March 2024 Short-Term Energy Outlook, the Henry Hub spot price averaged $6.67 per Mcf in 2022 and $2.63 per Mcf in 2023. The sameforecast shows an average Henry Hub spot price of $2.36 per Mcf in 2024 and $3.06 per Mcf in 2025 (nominal prices).

To fully appreciate the significance of these forecasts, it’s important to understand the difference between nominal and real prices. Nominal prices are those seen in the market at any given time, not adjusted for inflation. These are the immediate prices that consumers see and pay. The real price value, adjusted for inflation, allows for a consistent comparison of retail natural gas prices over time, reflecting the changing purchasing power of money. Understanding real prices is crucial for making informed decisions regarding energy consumption, policymaking, and investment, as it reveals the true economic impact of price changes beyond mere inflation.

The Short-Term Energy Outlook from the Energy Information Administration provides historical and a two-year look-ahead on key energy prices, including natural gas, petroleum products, and electricity. The residential natural gas price is the price of gas used in private dwellings, including apartments, for heating, cooking, water heating, and other household uses. The price includes two major components: costs of the wholesale price of natural gas and related transportation and distribution charges. Prices are reported in nominal and “real” terms by using the Consumer Price Index to adjust for inflation. For example, the real price in Month A is calculated by multiplying the nominal price in Month A by the ratio of the Consumer Price Index in the base month to the Consumer Price Index in Month A. In this case, the base CPI is March 2024.