Natural gas producers can thank the hot summer for helping to burn up a large portion of the country’s growing gas production during the third quarter, according to the latest Energy Information Administration (EIA) Short-Term Energy Outlook, released last Wednesday.

Gas consumption by the power generation sector made up nearly half of an estimated 57.9 Bcf/d consumed during the third quarter, EIA said. The quarter saw 942 cooling degree days (CDD), about 22% more than the 30-year norm and above the 930 CDD for the record-breaking heat of the third quarter of 2010.

Going forward, gas consumption is expected to increase by an average of 1.2 Bcf/d in 2011 and 0.5 Bcf/d in 2012, with growth in the power generation and industrial sectors driving the increases, EIA said. Demand growth in the power sector is expected to hold steady this year and next; however, EIA figures show a significant tapering of demand growth in the industrial sector in 2012.

Consumption for power generation is expected to increase by 0.36 Bcf/d (1.8%) and 0.37 Bcf/d (1.8%) in 2011 and 2012, respectively. EIA expects consumption in the industrial sector to rise from 18.1 Bcf/d to 18.5 Bcf/d (2.2%) in 2011 and to 18.6 Bcf/d (0.5%) in 2012, as the projected natural gas-weighted industrial production index also continues to rise but at a slowing rate.

Marketed gas production is expected to average 66 Bcf/d in 2011, a 4.2 Bcf/d (6.7%) increase over 2010 due to increases in onshore production in the Lower 48, which will more than offset a steep year-over-year decline of more than 0.9 Bcf/d (15%) in the Federal Gulf of Mexico (GOM) and a small decline in Alaska, the agency said. EIA expects that overall production will continue to grow in 2012, but at a slower pace, increasing 1.4 Bcf/d (2.1%) to an average of 67.4 Bcf/d.

Drilling activity has been resilient despite lower natural gas spot and futures prices, EIA said. If drilling continues to increase, production could grow more than expected in 2012, it said.

The EIA on Wednesday also released its 2011-2012 Winter Fuels Outlook, in which the government agency said it expects households heating with gas to spend an average of $19 (3%) more than last winter. About one-half of U.S. households use gas as their primary heating fuel. The increase represents a 4% increase in prices and a 1% decrease in consumption.

In the Midwest, where 71% of households use gas as the primary heating fuel, expenditures are expected to be unchanged from last winter, EIA said. The projected changes in residential gas prices this winter range from a 2% decline in the West to a 10% increase in the South. Price changes vary across regions because of factors such as regional changes in production and pipeline capacity and differences in regulatory constraints in passing price changes through to customers.

On Tuesday the American Gas Association said warmer weather and increased gas supplies should keep winter gas prices on par with prices from last winter (see related story).

Growing domestic gas production has reduced reliance on imports and contributed to increased exports. EIA expects that pipeline gross imports of natural gas will fall by 4.8% to 8.6 Bcf/d during 2011 and by another 3.1% to 8.4 Bcf/d in 2012. Projected U.S. imports of liquefied natural gas (LNG) fall from 1.2 Bcf/d in 2010 to 0.9 Bcf/d in 2011 and to 0.7 Bcf/d in 2012. Pipeline gross exports to Mexico and Canada are expected to average 4.1 Bcf/d in 2011 and 4.2 Bcf/d in 2012, compared with 3.1 Bcf/d in 2010.

EIA said it expects gas storage levels, though currently lower than last year, will come close to last year’s levels toward the end of the 2011 injection season, reaching 3.77 Tcf at the end of October.

The Henry Hub spot price averaged $3.90/MMBtu in September, 15 cents lower than the August average. EIA expects that Henry Hub spot prices will fall further in October before rising above $4/MMBtu in December. The latest Outlook lowers the 2011 forecast by 5 cents to $4.15/MMBtu, 24 cents less than the 2010 average. Although the average 2011 spot gas price is lower than the 2010 average, the forecast price over the winter of 2011-2012 is higher than last winter’s average. Last year the Henry Hub spot price hit a low of $3.43/MMBtu in October. EIA expects this winter’s heating season will start out with an average Henry Hub spot price of $3.78/MMBtu in October. EIA said it expects the Henry Hub price in 2012 to average $4.32/MMBtu.

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