The Energy Information Administration (EIA) last week lifted its forecast on Henry Hub natural gas spot prices for 2010 from a month ago, expecting them now to average $4.70/MMBtu, which is 75 cents above 2009’s average price and 22 cents more than government forecasters predicted in June.

Most of the jump in gas prices is expected to occur from now through September “due to projections of increased hurricane activity in the Gulf of Mexico this season, which helped push spot prices higher,” EIA stated in its Short Term Energy Outlook.

Henry Hub spot prices in 2011 now are forecast by EIA to average $5.17/MMBtu, which is 11 cents higher than in its June outlook.

U.S. Gulf of Mexico (GOM) gas output is forecast to fall by around 10% this year and in 2011 “as a result of hurricane outages, the announced offshore drilling moratorium and the decline in active drilling rigs over the last four years,” EIA said. The estimated median outcome for hurricane outages from June through November is a cumulative 166 Bcf this year, compared with 19 Bcf in 2009.

The offshore drilling moratorium, imposed by the government in late May, is projected to reduce GOM gas output by an average of 0.05 Bcf/d “for the last six months of 2010 and 0.25 Bcf/d for 2011.”

Lower 48 onshore gas production is seen increasing by 2 Bcf/d (3.8%) this year and 0.2 Bcf/d (0.3%) in 2011, forecasters said.

Imports of liquefied natural gas (LNG) now are predicted by EIA to average 1.37 Bcf/d in 2010, which is down by about 0.14 Bcf/d from the June forecast. Projected LNG imports, however, are forecast to increase to 1.52 Bcf/d in 2011. “While imports are expected to grow, higher prices in European and Asian markets will likely divert LNG cargoes from the United States,” EIA said.

Gross pipeline imports are expected to be 8.8 Bcf/d this year, which would be a decrease of almost 3% from 2009. In 2011 EIA expects gross pipeline imports to average around 8.2 Bcf/d.

This month’s outlook also revised downward EIA’s projections for oil production resulting from the deepwater drilling moratorium.

According to EIA, the drop in crude oil output from the moratorium, expected to last at least six months, is estimated to average about 31,000 b/d in the last three months of this year, compared with an estimated average of 26,000 b/d forecast last month. Crude output also is forecast to fall by about 82,000 b/d in 2011, which is up from an earlier prediction of 70,000 b/d.

West Texas Intermediate spot crude prices, which ended in June near $76/bbl, are seen averaging $79/bbl over the second half of this year, rising to $83/bbl in 2011. The EIA oil price forecast is unchanged from June.

Annual average residential electricity prices were revised “only moderately” from a month ago, and now are expected to average 11.6 cents/kWh in 2010, up from 11.5 cents in 2009. In 2011 prices are seen averaging around 12 cents/kWh.

Meanwhile, estimated U.S. carbon dioxide emissions from fossil fuels, which fell 7% in 2009, now are forecast to increase by 3.2% this year and 1.6% in 2010 “as economic growth spurs higher energy consumption.”

Separately, Wood Mackenzie’s Jen Snyder, the firm’s principal natural gas analyst, said last week cost pressures, which in some areas already have begun to intensify, should help U.S. gas prices recover over the next few years to between $6.50/MMBtu and $7/MMBtu.

Snyder, offered her take on why gas prices should escalate at last week’s annual Rocky Mountain Energy Epicenter, sponsored by the Colorado Oil & Gas Association.

The gas industry will begin to see “heavy cost pressures develop to around 2015,” Snyder told delegates. Some producers have begun to report oilfield service costs escalating after plummeting in 2009 (see related story). Higher costs will come not only from service costs and margins but also competition with oil projects for horizontal drilling rigs and an “overall” higher cost economy, said Snyder. “We expect long term gas prices over the next five years to recover to between $6.50 to $7/MMBtu, reflecting both these cost pressures and the eventual need to access a higher-cost supply source,” she said. “The core, low-cost unconventional gas plays — Marcellus, Haynesville and Barnett — will continue to grow, but within a few years as the pace of demand growth accelerates, more expensive shale and tight gas supplies will be required.”

Because of economy-wide inflationary pressures, “in nominal terms, prices could reach $8.50/MMBtu.”

Gas demand growth long term also is expected to come from the power sector as more coal plants are retired, said Snyder. “Even in the absence of carbon legislation, [the Environmental Protection Agency] and local regulations could lead to 45 GW of coal-fired power generation being retired by 2020, stimulating as much as 5 Bcf/d of gas demand just to offset lost generation from the idled plants.

“Total gas demand growth in the power sector alone could range between 8-10 Bcf/d by 2010.”

Longer term, U.S. gas producers will have to decide whether it makes sense to export gas supplies via liquefied natural gas, said the analyst. “Wood Mackenzie’s evaluation of the benefits and risks of this show that the economics look extremely challenging, but other drivers, such as a portfolio approach by producers or buyers’ desire for supply diversity, could support North American liquefaction,” she said.

“However, much depends on how closely global gas prices will be linked to oil prices; how Russia may react to new competing supply from the U.S., and the extent and timing of new global unconventional gas supplies, for example in Poland or China — all of which remain uncertain.”

©Copyright 2010Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.