The Energy Information Administration (EIA), which had issued a series of deflating natural gas price forecasts, said Tuesday it expects Henry Hub prices to average $2.97/MMBtu this year, a 4-cent increase from the agency’s previous forecast in May.

“EIA expects monthly average natural gas prices to rise somewhat through the summer as air conditioning demand increases, but remain below $4/MMBtu throughout the forecast period,” the agency said in its latest Short-Term Energy Outlook (STEO). The agency’s $3.32/MMBtu forecast for 2016 is unchanged from the last STEO.

EIA’s price forecasts have been on a general downward trend for some time. Last month, EIA said it expected Henry Hub spot prices to average $2.93/MMBtu this year and $3.32/MMBtu next year, down 14 cents and 13 cents, respectively, from the previous month forecast (see Daily GPI, May 12). As recently as December, EIA estimated that Henry Hub spot prices would average $3.83/MMBtu in 2015, a full 90 cents higher than the latest forecast (see Daily GPI, Dec. 9, 2014).

Henry Hub prices averaged $2.85/MMBtu last month, an increase of 24 cents from April. Natural gas futures prices for September 2015 delivery (for the five-day period ending June 4) averaged $2.69/MMBtu. Current options and futures prices imply that market participants place the lower and upper bounds for the 95% confidence interval for September 2015 contracts at $1.79/MMBtu and $4.03/MMBtu, respectively. At this time last year, the natural gas futures contract for September 2014 averaged $4.58/MMBtu and the corresponding lower and upper limits of the 95% confidence interval were $3.54/MMBtu and $5.92/MMBtu, EIA said.

The agency expects U.S. natural gas production is to reach a record high in July, and forecast marketed gas production will increase by 4.2 Bcf/d (5.7%) this year and by 1.6 Bcf/d (2.0%) in 2016. Production increases in the Lower 48 are expected to more than offset long-term declining production in the Gulf of Mexico.

“Increases in drilling efficiency will continue to support growing natural gas production in the forecast despite relatively low natural gas prices,” EIA said. Most growth is expected to come from the Marcellus Shale.

Increasing domestic gas production is expected to reduce demand for imports from Canada and support increased exports to Mexico, particularly from the Eagle Ford Shale. And liquefied natural gas gross exports will increase to 0.79 Bcf/d next year, according to the agency.

EIA expects total natural gas consumption to average 76.7 Bcf/d in 2015, up from an estimated 73.5 Bcf/d in 2014, and increase again to 76.6 Bcf/d in 2016. Growth is expected to be largely driven by the industrial and electric power sectors, while residential and commercial consumption is projected to decline in 2015 and again in 2016.

“EIA projects natural gas consumption in the power sector to grow by 13.7% in 2015 and then fall by 2.7% in 2016,” the agency said. “Low natural gas prices support increased use of natural gas for electricity generation in 2015. Industrial sector consumption increases by 3.6% in both 2015 and 2016, as new industrial projects come online, particularly in the fertilizer and chemicals sectors, and as industrial consumers continue to take advantage of low natural gas prices.”

Natural gas working inventories totaled 2,233 Bcf as of May 29, which is 751 Bcf more than at the same time in 2014 and 22 Bcf lower than the previous five-year (2010-2014) average. The agency projected that end-of-October inventories will total 3,912 Bcf, which would be 115 Bcf above the five-year average.