Concerns about extreme weather conditions and rising prices in the crude oil market will keep upward pressure on the Henry Hub natural gas spot price this year and next, the Energy Information Administration (EIA) said in its Short-Term Energy Outlook for April and Summer Fuels Outlook. It also anticipates higher gas consumption and production levels this year.

“On an annual basis, the Henry Hub spot price is expected to average $7.83/Mcf in 2007, an 89-cent increase from the 2006 average, and $8.11/Mcf in 2008,” the Department of Energy agency said in its combined April and summer fuels forecast, which was released Tuesday.

“[Natural gas] prices are expected to rise, albeit slowly, over the next several months as crude oil prices rise and electric power demand for natural gas increases during the summer cooling season. The trend will accelerate in the third quarter during the height of the cooling season and again when spot prices begin their climb toward a winter peak,” the EIA said.

Spot prices will continue their upswing despite the historically high levels of gas in inventory, according to the report. Working gas in storage finished out the winter season in late March at 1,569 Bcf, about 127 Bcf below the level for the corresponding week last year but 337 Bcf above the previous five-year average, the agency said. It noted that this year’s end-of-March storage volume was the second highest since the end of March 1991. Working gas in storage is likely to remain above the previous five-year average throughout this year and next.

“A colder-than-normal first quarter has set the stage for an increase in total natural gas consumption in 2007, which is projected to rise above 2006 levels by about 540 Bcf, or 2.5%,” the EIA said. The projections for heating and cooling degree days from the National Oceanic and Atmospheric Administration over the forecast period imply higher residential gas consumption but lower consumption in the electric power sector this year, it added.

Gas-weighted heating degree days this year are projected to be 11% higher than in 2006, and residential natural gas consumption is expected to show growth of 8.4% over last year. “However, after a warmer-than-normal summer in 2006 (cooling degree days were 19% and 14% above normal last July and August, respectively), an assumed return to near-normal temperatures during the summer of 2007 is expected to reduce consumption of natural gas by 1% in the electric power sector,” the EIA said.

Total gas consumption in 2008 is projected to rise by less than 2%, with growth of 2.3% and 1.6% in the residential and electric power sectors, respectively, the agency noted.

Total U.S. dry natural gas production is expected to increase by 1.4% to 18.74 Tcf this year, and by 1.3% to 18.99 Tcf in 2008, according to the EIA. “Year-over-year production growth in the Gulf of Mexico expected in 2007 is largely attributable to continued recovery from the hurricane disruptions of 2005 that carried over into the first half of 2006. In addition to expanding Gulf of Mexico production, continued high rig counts are expected to lead to moderate production increases by onshore facilities in the Lower 48 states,” it said.

As for other supply sources, the EIA reported that first quarter imports of liquefied natural gas (LNG) are estimated to have risen 47% above the corresponding period last year. LNG imports this year are projected to rise to 750 Bcf, or about 170 Bcf more than the 2006 total, the agency noted.

“If LNG demand outside U.S. markets is lower than expected this year, it could push U.S. imports above current projections and dampen domestic natural gas prices. LNG imports are expected to remain strong in 2008, surpassing 1 Tcf.”

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