The Energy Information Administration’s (EIA) Short-Term Energy Outlook for July pretty much mirrors its June outlook, with the agency projecting an annual increase of 4.3% in natural gas consumption and nearly flat production. It expects average spot prices in the third quarter to be slightly more moderate than those in the second quarter due in part to an anticipated return of near-normal weather.

“Cooler-than-normal weather (4% more heating degree days than normal) and increased utilization of natural gas-fired facilities in the electric power sector raised total natural gas consumption by 2.9% in the second quarter…over the corresponding period of 2006,” the Department of Energy (DOE) agency said in its outlook, which was released Tuesday.

But “the assumed return of near-normal weather in [the] third quarter…from the warmer-than-normal third quarter of 2006 (10% more cooling degree days than normal) is expected to result in a decline in year-over-year consumption for the quarter,” the EIA said. On an annual basis, however, total natural gas demand is expected to rise by 4.3% to 22.75 Tcf this year, and by 1.1% to 23.01 Tcf in 2008, it noted.

The EIA estimates that total dry natural gas production will increase by only 0.3% to 18.59 Tcf this year. The figure reflects an allowance for hurricane-induced outages of about 85 Bcf in the Gulf of Mexico. On an annual basis, production in the Gulf is expected to decline by 4.9% this year, but recover with 8.1% growth in 2008, according to the agency. It expects U.S. production to rise by 2.2% to 18.98 Tcf in 2008 due largely to the “continued production growth” of onshore wells.

Absent any major hurricanes this year, the EIA said the Henry Hub spot price is likely to average $7.66/Mcf in the third quarter, compared to $7.76/Mcf in the second quarter, and $8.79/Mcf in the fourth quarter. It expects the winter price peak to occur in the first quarter of 2008, with the monthly average price to remain under $10/Mcf. On an annual basis, the Henry Hub spot price is expected to average $7.91.Mcf this year, up 98 cents/Mcf over 2006, and $8.39/Mcf next year.

Imports of liquefied natural gas (LNG) averaged 3 Bcf/d during the second quarter and are now expected to total 840 Bcf this year, roughly 44% more than in 2006, the EIA said. And in 2008, LNG imports are projected to rise by 22% to reach 1,020 Bcf.

At the end of June, working natural gas in storage was 2,521 Bcf. After a string of above-average injections in May and June, current inventories are about 364 Bcf above the five-year average and just 84 Bcf below the level a year ago, according to the EIA.

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