This year will see a “noticeable easing” in spot natural gas prices, leading to an annual average decline in the Henry Hub price of about 10%, but the respite is expected to be short-lived, the Energy Information Administration (EIA) said in its Short-Term Energy Outlook for March.

Concerns about potential future supply tightness and continuing pressure from high oil market prices are keeping expected spot gas prices for the next heating season at high levels, with the Henry Hub spot price again likely to rise above $10/Mcf, the statistical arm of the Department of Energy (DOE) said in its latest Outlook, which was released Tuesday. It projected that the Henry Hub price, which averaged $8.98/Mcf in 2005, would be about $8.11/Mcf this year and $8.74/Mcf in 2007.

In the meantime, spot Henry Hub gas prices are expected settled around $7/Mcf over the next few months (from an average of about $13.44/Mcf in December) due to the continuing warming trend and surplus gas in storage, according to the EIA. Henry Hub prices averaged $7.13/MMBtu during March bidweek and fell to $6.49/MMBtu on Monday.

For the week ended Feb. 24, working gas in storage stood at an estimated 1,972 Bcf, which was 344 Bcf above the level a year ago and 641 above the five-year average, the EIA reported. Much of the excess storage inventory is due to the “unexpectedly warm winter weather, particularly in January,” the agency said.

The EIA estimates that working gas in storage will close out the winter heating season at 1.72 Tcf, after beginning the season with 3.28 Tcf in storage. This would put total withdrawals for the winter at 1.56 Tcf, compared to 2.09 Tcf last winter.

Despite the warming trend, the EIA noted that households still had higher heating bills this winter compared to last winter. It estimated that homes heated with natural gas paid $126 more this winter (17%), while households heated with heating oil paid $187 more (16%), propane-fueled homes paid $134 more (12%), and electricity customers shelled out $47 more (7%) this winter.

Domestic dry natural gas production in 2005 is estimated to have declined by 3.2% to 18.15 Tcf owing mainly to the hurricane-induced disruptions in the Gulf of Mexico last summer, according to the DOE agency. Interior’s Minerals Management Service (MMS) projects that 400 MMcf/d of gas production will continue to be offline prior to the start of the next hurricane season on June 1. However, EIA sees overall gas production rising by 2.2% this year and by 1.7% in 2007.

EIA predicts that total gas demand this year (22 Tcf) will be flat with 2005 levels, and then will increase by 2.4% in 2007 to 22.52 Tcf. “Because of the warm January and the assumed return to normal summer weather, the demand for natural gas for generation of electricity is expected to fall by 4.4% in 2006, then increase by 1.3% in 2007. Recovery in natural gas-intensive industrial output following the 2005 hurricanes is expected to contribute to growth in industrial gas demand this year (4.3%) and in 2007 (1.5%).”

Total liquefied natural gas imports are anticipated to increase from their 2005 level of 630 Bcf to 830 Bcf this year, and then climb to 1,030 in 2007, the EIA said.

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