A cold beginning to spring that resulted in a tepid start to the natural gas storage refill season has analysts at the Energy Information Administration (EIA) once again revising their natural gas price forecasts upward for the rest of 2013 and 2014. The government agency added that strong onshore production growth will offset Gulf of Mexico declines in both years.

In its latest Short Term Energy Outlook, which was released Tuesday, the government agency said it expects the Henry Hub natural gas spot price, which averaged $2.75/MMBtu in 2012, will average $3.80/MMBtu in 2013 and $4.00/MMBtu in 2014, about 27 cents/MMBtu and 40 cents/MMBtu higher than forecast in last month’s outlook, respectively.

EIA pointed out that gas spot prices generally increased through March and most of April, hitting a 20-month high in recent weeks. The agency said “an unusually cold March” triggered price increases after three months of stagnant prices, as space-heating demand increased through much of the country and led to large storage withdrawals. EIA said prices continued to rise in April as lingering cold in the Midwest kept markets tight. The Henry Hub spot price averaged $4.17/MMBtu in April, up 36 cents from the $3.81/MMBtu average seen the previous month and the highest monthly average price since July 2011.

Natural gas futures prices for August 2013 delivery (for the five-day period ending May 2, 2013) averaged $4.34/MMBtu, up 76% from the August 2012 contract during this period a year ago, which averaged $2.46/MMBtu.

Despite the recent bullish momentum, EIA said Tuesday it expects Henry Hub spot prices will fall through September as markets loosen with lower summer demand. Going into the summer, production is expected to be slightly higher than last year’s levels, while summer electric power demand is projected to be lower than last year’s record-high levels, EIA said in the outlook.

One of the reasons for the higher 2013 and 2014 price forecasts is that storage levels are returning from their mercurial levels of a year ago. Working gas stocks at the end of March 2013 were an estimated 1,683 Bcf, 32% lower than the 2,477 Bcf in working storage at the same time last year, but roughly in line with earlier years. “The very warm winter of 2011-12 contributed to the very high inventory at the start of last year’s summer injection season (between the end of March and the end of October). Consequently, the forecast 2,113-Bcf build in working gas inventories during this summer’s injection season is significantly higher than the 1,453 Bcf added last year and in line with longer historical experience,” EIA said. “Higher natural gas prices this year contribute to lower natural gas consumption for electricity generation and the higher storage build.”

As of April 26, EIA said working gas stocks totaled 1,777 Bcf, which is 795 Bcf less than at the same time in 2012, 118 Bcf below the five-year (2008-12) average, and 51 Bcf above the four-year (2008-11) average excluding last year’s “very unusual experience.” EIA projects working gas stocks at the end of this summer’s stock-build season will reach 3,796 Bcf, about 134 Bcf below the level at the same time last year.

On the demand side, EIA expects that gas consumption, which averaged 69.7 Bcf/d in 2012, will average 70.2 Bcf/d and 69.6 Bcf/d in 2013 and 2014, respectively. The agency explained that colder winter temperatures forecast for 2013 and 2014 (compared with the record-warm temperatures in 2012) are expected to increase the amount of gas used for residential and commercial space heating. The projected year-over-year increases in natural gas prices contribute to declines in natural gas used for electric power generation from 25.0 Bcf/d in 2012 to 22.8 Bcf/d in 2013 and 22.2 Bcf/d in 2014.

Marketed gas production is projected to increase from 69.2 Bcf/d in 2012 to 69.9 Bcf/d in 2013, and 70.1 Bcf/d in 2014 as onshore production increases over the forecast period while federal Gulf of Mexico production declines. Gas pipeline gross imports, which have declined over the past five years, are projected to remain near their 2012 level over the forecast period, EIA said. Liquefied natural gas imports are expected to remain at minimal levels of less than 0.5 Bcf/d in both 2013 and 2014.