Henry Hub natural gas spot prices are expected to average $4.44/MMBtu in 2010, up 49 cents from 2009’s average price, but well below the $5.17 average gas price projected in March, the Energy Information Administration (EIA) said Tuesday in its April Short-Term Energy and Summer Fuels Outlook.

“The price outlook is lower primarily because of an average 2 Bcf/d upward revision to the 2010 domestic natural gas production forecast,” said the federal agency.

The Henry Hub spot price averaged $4.29/MMBtu in March, $1.03 lower than the average spot price in February and 64 cents lower than EIA’s forecast for March in last month’s Outlook.

“EIA expects prices to remain low for the next several months. With strong production and the absence of meaningful space heating demand, lower-priced natural gas will once again compete with coal for a share of the baseload electricity supply — particularly in the spring and fall. Sustained low prices could reduce drilling activity over time. As a result, EIA expects production to decline and prices to increase in 2011.”

EIA now is forecasting 2011 Henry Hub spot prices to average $5.33/MMBtu.

Improved economic conditions should lift total natural gas consumption this year by 1.9% to 63.8 Bcf/d in 2010, EIA noted. However, in 2011, total gas consumption is projected to fall by 0.6%. Total U.S. heating degree days (HDD) in 1Q2010 “were about 0.7% higher than last year,” and in the South region, HDDs in the first three months of this year were 20% above the year-ago period.

“The cold weather helped boost year/year natural gas consumption in the electric power sector, adding to the increase in industrial sector consumption brought about by the improved economic conditions,” EIA said.

In last month’s Outlook, EIA raised its forecast for 2010 for natural gas consumption in the electric power sector “largely because of the higher space heating demand due to cold weather in the South. This month’s Outlook includes another upward revision to the electric power sector consumption forecast. However, this revision reflects EIA’s expectation that lower natural gas prices relative to coal prices will increase the utilization of natural gas-fired generating facilities in the baseload power supply.”

Going into 2011, EIA now is forecasting gas consumption declines across the board — except for the industrial sector.

“The projected return to near-normal weather reduces consumption in the residential and commercial sectors, while higher natural gas prices reverse the coal-to-gas switching trend observed in 2009 and forecast to continue in 2010,” the forecast noted. “Consumption in the industrial sector, supported by continued economic growth, is projected to increase by 1.7% in 2011.”

Total marketed U.S. natural gas output now is forecast by EIA to be up by 0.4 Bcf/d (0.7%) to 60.9 Bcf/d in 2010 and fall by 0.7 Bcf/d (1.2%) in 2011.

“In last month’s Outlook, domestic production growth was forecast to decline by 0.5 Bcf/d in 2010, reflecting the lagged effect of lower drilling rates last year,” said the agency. “The higher production forecast in this Outlook reflects the latest January 2010 production estimate from the EIA-914 survey and the continuing increase in the number of working natural gas rigs over the last month.

“Any significant revision to estimated January 2010 natural gas production…would affect this forecast. The number of working natural gas rigs has increased by almost 200 since the end of last year. With no further increase from the current 950 natural gas rigs currently working, EIA expects production to begin to show month-to-month declines beginning in the second quarter this year.”

However, the federal agency does not anticipate year/year declines in production until early 2011.

“EIA expects U.S. net natural gas imports to decline in 2010 as higher imports of liquefied natural gas (LNG) — and lower pipeline exports — are more than offset by a steep decline in pipeline imports as Canadian natural gas production drops off. The global LNG market appears to be well supplied in 2010,” with an estimated 3 Bcf/d of new capacity expected to start up this year.

EIA now expects U.S. LNG imports to grow by about 0.5 Bcf/d in 2010 but “the failure of global demand to keep pace with increased global supply could lead to even higher U.S. LNG imports than currently forecast.”

Continued gas production strength in the United States will contribute to high storage inventories again this fall, according to the forecast. “The forecast injection of 2,063 Bcf between March and November is about 5% below the stock build that occurred over the corresponding period last year, but it is more than 6% above the previous five-year average.”

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