Natural gas drilling is expected to slide in 2011 due to lower prices, the Energy Information Administration (EIA) said in its Short-Term Energy Outlook for December.

"Over the last six months the natural gas rig count has stayed relatively unchanged, but in the last several weeks it has appeared to show the beginning of an expected decline, ending November with 953 rigs. EIA expects drilling activity to decline in 2011 because of relatively lower natural gas prices," the statistical arm of the Department of Energy reported.

The shift toward drilling in shale formations will continue given the large price difference between petroleum liquids and natural gas prices, according to the EIA.

"Over the winter heating season, the projected monthly average spot price peaks at $4.29/MMBtu in January 2011 before dropping back down to close to $4/MMBtu in June 2011," it said. The EIA raised its price projection for 2011 to $4.33/MMBtu this month from its previous forecast of $4.31/MMBtu.

Despite recent signs that rig activity has slowed, the EIA projects that marketed natural gas production will rise 3.5% to 62.09 Bcf/d this year from 59.98 Bcf/d, up from a 2.5% increase predicted in last month's outlook. "The revision is largely due to unexpectedly high production during the month of September as reported in the EIA Natural Gas Monthly," it said.

The EIA predicts a total year-over-year decline in marketed production of 0.1% to 62.01 Bcf/d in 2011. An expected 14.3% decline in Gulf of Mexico (GOM) production to 6.18 Bcf/d this year from 6.67 Bcf/d in 2009 is mostly offset by a 1.4% increase this year to 54.90 Bcf/d in the Lower 48 non-GOM production, the agency said.

The December Outlook reflects recent changes to the Form EIA-857 monthly natural gas survey methodology for forecasts of residential and commercial gas consumption. The new survey methodology should not significantly change reported annual consumption volumes, but EIA said it expects significant changes in the seasonality of reported residential and commercial consumption.

"For example, first quarter 2011 forecast residential plus commercial consumption is 1.7 Bcf/d lower in this forecast compared with last month's outlook, while fourth quarter 2011 consumption is 3.8 Bcf/d higher," the agency said.

Working gas storage, which stood at 3,814 Bcf at the start of the winter heating season, is expected to be 1,833 Bcf at the end of March 2011, according to the EIA. "The forecast higher inventory is primarily the result of both the projected 3.1 Bcf/d increase in natural gas production and 5% fewer heating degree days over the next four months compared with the year before."

The EIA said it expects gross pipeline imports to drop 6.3% to 8.4 Bcf/d in 2011. This is a significant revision of last month's forecast of a 1.4% increase. The agency expects Canadian gas will become less competitive as new U.S. pipelines and increased Lower 48 production with lower transport costs displace imports.

While liquefied natural gas (LNG) imports into the United States are expected to average 1.25 Bcf/d this year, up slightly from 2009 levels, they are projected to fall to 1.21 Bcf/d in 2011. High domestic production, bulging inventories and low U.S. prices relative to European and Asian markets should continue to discourage LNG imports into North America.

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