There may be light at the end of the tunnel for slumping natural gas prices, according to the Energy Information Administration (EIA), which said Monday it expects the benchmark Henry Hub to average $2.65/MMBtu in 2016 and $3.22/MMBtu in 2017.

The increases, compared with $2.63/MMBtu in 2015, will come thanks to consumption growth, mainly from the industrial sector, that are expected to outpace near-term production growth, EIA said in its latest Short-Term Energy Outlook (STEO).

While EIA’s 2016 price forecast is up a tick compared with 2015 — and Henry Hub spot prices are expected to rise throughout 2016 — it is down 23 cents compared with the previous STEO (see Shale Daily, Dec. 8, 2015), and monthly average Henry Hub spot prices are forecast to remain below $3/MMBtu through December. More significant recovery isn’t expected until 2017.

The agency’s price forecasts declined steadily throughout 2015. At the beginning of 2015, EIA projected 2015 Henry Hub prices to average $3.44/MMBtu and 2016 gas to average $3.86/MMBtu (see Daily GPI, Jan. 13).

Henry Hub prices averaged $1.93/MMBtu last month, a decrease of 16 cents from November, according to the STEO report.

“Warmer-than-normal temperatures in the first half of the heating season, record inventory levels, production growth, and forecasts for a warm winter contributed to spot prices remaining low,” EIA said.

Natural gas futures prices for April 2016 delivery (for the five-day period ending Jan. 7) averaged $2.38/MMBtu.

Current options and futures prices imply that market participants place the lower and upper bounds for the 95% confidence interval for April 2016 contracts at $1.61/MMBtu and $3.52/MMBtu, respectively. At this time last year, the natural gas futures contract for April 2015 averaged $2.88/MMBtu and the corresponding lower and upper limits of the 95% confidence interval were $1.90/MMBtu and $4.36/MMBtu, EIA said.

EIA expects production growth to be relatively flat this year, partly in response to low prices and declining rig activity. Total marketed natural gas production hit a record high of 80.2 Bcf/d in September, and EIA estimates marketed production last year averaged 79.1 Bcf/d (up 5.7% from 2014). Growth will slow to 0.7% in 2016, the agency said.

“In 2017, however, forecast production growth increases to 1.8%, as forecast prices rise and more demand comes from industrial sectors and liquefied natural gas (LNG) exporters,” EIA said.

Total natural gas consumption is expected to average 76.6 Bcf/d this year and 77.2 Bcf/d next year, compared 75.5 Bcf/d in 2015.

“Increases in industrial sector consumption drive total consumption growth in 2016 and 2017,” EIA said. “Industrial sector consumption of natural gas increases by 3.5% in 2016 and by 2.5% in 2017, as new projects in the fertilizer and chemicals sectors come online.” EIA expects a 0.1 Bcf/d (0.3%) decline in consumption of natural gas for power generation in 2016 and a 1.4% decrease in 2017. Consumption in the residential and commercial sectors is projected to increase in 2016 and 2017, reflecting slightly higher heating demand in those years.

On Nov. 20, natural gas inventories reached a record high 4,009 Bcf. By Jan. 1, they had slipped to 3,643 Bcf. “Withdrawals during the heating season have been relatively low because of warmer-than normal weather,” EIA said. “January 1 inventories were 535 Bcf (17%) above year-ago levels and 464 Bcf (15%) above the five-year (2011-15) average. Inventories are forecast to be 2,043 Bcf at the end of March 2016, which would be 421 Bcf above the five-year average.”

EIA expects natural gas exports to Mexico to increase because of growing demand from Mexico’s electric power sector, coupled with flat gas production there. LNG gross exports are forecast to increase to an average of 0.7 Bcf/d in 2016 and 1.4 Bcf/d in 2017.