The Energy Information Administration (EIA) said Tuesday in its Short-Term Energy Outlook that “barring extreme weather for the rest of the year,” the Henry Hub spot price’s 2006 average is expected to be more than a dollar less than it was in 2005.

“Natural gas prices are projected to be lower through the rest of this year relative to the corresponding period in 2005,” the EIA said Tuesday in its report. “The expected 2006 average of $7.69 per Mcf for Henry Hub spot prices would be a drop of $1.17 from the 2005 average.” The Henry Hub spot price average in 2005 was 8.86/Mcf. The government agency said that while the average fell to $6.36/Mcf during July, recent warm summer weather and natural gas demand for electricity generation have pushed prices back up.

In 2007, the EIA said Henry Hub average price likely will move back up to an average of $8.17/Mcf, assuming sustained high oil prices, normal weather, and continued economic expansion in the United States.

The EIA noted the recent string of year-on-year and year-on-five-year storage reductions is due to increased electricity demand due to above-normal temperatures. “Record temperatures across the United States in the second half of July drove electricity demand higher, which in turn caused increased natural gas demand for electricity generation,” the EIA said. “During the week ending July 21, natural gas inventories fell by 7 Bcf, which was the first decline ever recorded during the summer months.”

On July 28, 2006, working natural gas in storage stood at an estimated 2,775 Bcf, according to EIA figures. Stocks are still 360 Bcf above a year ago (2,415 Bcf) and 447 Bcf above the five-year average (2,328 Bcf). “The relatively warm winter weather in the first quarter 2006 and the large difference by which prices for future delivery contracts for the 2006-2007 winter months have exceeded spot prices account for much of the current high storage level,” the EIA said.

The EIA said total U.S. natural gas consumption in 2006 is projected to fall below 2005 levels by about 270 Bcf, or 1.2%, then increase by 810 Bcf, or 3.7% in 2007. “Residential natural gas consumption is projected to fall in 2006 by 7.6% from 2005 levels due to mild weather early in 2006 and then increase by 9.1% in 2007, assuming normal weather,” the government agency said. “Following recovery from the 2005 hurricane season, the output of natural-gas-intensive industries will likely contribute to some growth in industrial natural gas consumption this year (1.9%) and more in 2007 (2.8%).”

On the production front, the EIA said that while dry natural gas production is only expected to increase marginally, increased liquefied natural gas (LNG) imports are likely to fill the gap. The administration said dry natural gas production is projected to increase by 1.3% in 2006 and by 0.4% in 2007, while total LNG net imports are expected to increase from their 2005 level of 630 Bcf to 730 Bcf in 2006 and to 980 Bcf in 2007.

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