Spot natural gas prices are expected to remain in the range of $6.50/Mcf to $7/Mcf through the summer despite the high level of gas in storage, according to the Energy Information Administration’s (EIA) Short-Term Energy Outlook for June.

Henry Hub spot gas prices averaged $7.30/Mcf in April and then fell to $6.66/Mcf in May as the weather in the Midwest and East moderated and crude oil prices eased, but the market “is likely to tighten over the next few months as summer cooling demand picks up,” the Department of Energy (DOE) agency said in the outlook, which was released Tuesday.

The high storage levels will have little impact on gas prices in the near term, the EIA said. “Although natural gas storage remains above the five-year average, high world oil prices, continued strength in the economy, the expectation that Pacific Northwest hydroelectric resources will be well below normal through mid-summer, and limited prospects for growth in domestic natural gas production all support the natural gas price projections.”

The EIA projects that monthly average spot prices will likely reach $7.50/Mcf by the end of the year. It revised its Henry Hub price forecast for the year downward to $6.90/Mcf from the $7.01/Mcf projected in last month’s outlook, and revised downward its projection for 2006 to just over $7.10/Mcf.

Gas demand likely will increase by 2% to 22.86 Tcf this year and by 2.3% to 23.4 Tcf in 2006 due largely to weather-related factors and continued strength in the consumption of gas by the electric generation sector, the EIA said.

Gas production this year, however, is expected to remain near the 2004 level, despite a 12-13% anticipated rise in gas-directed well completions, according to the EIA.

As for crude oil, the agency sees West Texas Intermediate (WTI) remaining above $50/bbl for the remainder of 2005 and 2006. It predicts that WTI crude oil prices will average $53/bbl throughout the third quarter, approximately $1/bbl higher than the projected average in the EIA’s Short-Term Outlook for May and $9/bbl above the year-ago level.

On the power front, the EIA projects that electricity demand will increase by 2.4% to 3,818 billion kilowatt hours this year, and by 2% to 3,896 billion kilowatt hours in 2006 due to continuing economic grow and expanding electricity demand.

“Third and fourth quarter 2005 year-over-year electricity demand growth is expected to be particularly strong, as cooling and heating demand are likely to be higher than in the mild third and fourth quarters of 2004. Hydroelectric power availability, which fell somewhat in 2004, is expected to increase in 2005 by about 4.1% nationally, a downward revision from the 11% projected last month, due to lower precipitation patterns thus far this year than expected…Pacific Northwest hydroelectric resources are expected to be well below normal through mid-summer. Coal demand in the electric power sector is expected to increase by 2.4% in 2005 and 2.1% in 2006” due largely to the high oil and gas prices, the EIA said.

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