Henry Hub natural gas prices are expected to average $2.89/MMBtu in 2015 and $3.21/MMBtu in 2016, significant dips from recent forecasts, the Energy Information Administration (EIA) said.

The price forecasts, released Tuesday in EIA’s latest Short-Term Energy Outlook (STEO), are both lower than the agency had expected last month, when EIA forecast $2.97/MMBtu this year and $3.31/MMBtu next year (see Shale Daily, July 7). Those forecasts were virtually unchanged from the previous month, offering some hope of prices firming up after months of declining forecasts. But the new STEO hints at a still softening market.

Henry Hub prices averaged $2.84/MMBtu last month, an increase of 6 cents from June. Natural gas futures prices for November 2015 delivery (for the five-day period ending Aug. 6) averaged $2.91/MMBtu.

Current options and futures prices imply that market participants place the lower and upper bounds for the 95% confidence interval for November 2015 contracts at $2.08/MMBtu and $4.06/MMBtu, respectively. At this time last year, the natural gas futures contract for November 2014 averaged $3.96/MMBtu and the corresponding lower and upper limits of the 95% confidence interval were $3.03/MMBtu and $5.16/MMBtu, EIA said. The agency expects monthly average spot prices to remain lower than $3.00/MMBtu this month.

EIA said marketed gas production will increase by 4.0 Bcf/d (5.4%) this year and by 1.8 Bcf/d (2.3%) in 2016.

“Despite data showing month-over-month production declines in May and June, natural gas production remains higher than year-ago levels,” the agency said. “EIA expects moderate growth through 2016, with increases in the Lower 48 states expected to more than offset long-term production declines in the Gulf of Mexico. Increases in drilling efficiency will continue to support growing natural gas production in the forecast despite relatively low natural gas prices.”

Most of the growth is expected to come from the Marcellus Shale, as a backlog of uncompleted wells is reduced and new pipelines come online to deliver Marcellus gas to markets in the Northeast.

Natural gas working inventories totaled 2,912 Bcf as of July 31, which is 535 Bcf more than at the same time in 2014 and 64 Bcf higher than the previous five-year (2010-2014) average. The agency projected that end-of-October inventories will total 3,867 Bcf, which would be 69 Bcf above the five-year average.

“Year-over-year strength in production has boosted storage injections this summer, despite warmer temperatures, which have increased natural gas use in the power sector to serve air conditioning demand,” EIA said.

Increasing domestic gas production is expected to reduce demand for imports from Canada and support increased exports to Mexico, particularly from the Eagle Ford Shale. EIA projects liquefied natural gas gross exports will increase to 0.79 Bcf/d next year.

Total natural gas consumption is expected to average 76.5 Bcf/d through 2016, up from an estimated 73.5 Bcf/d in 2014. Growth this year is expected to be largely driven by the industrial and electric power sectors, while residential and commercial consumption is projected to decline in 2015 and again in 2016.