The natural gas market will begin to tighten next year, and the Henry Hub spot price will average $4.41/MMBtu — following a projected $4.24/MMBtu this year — the Energy Information Administration (EIA) said in its Short-Term Energy Outlook for August.

But EIA’s price forecasts for 2011 and 2012 were lower than the agency had predicted last month (see Daily GPI, July 13). At that time EIA said it expected the spot gas price to average $4.26/MMBtu this year and $4.54/MMBtu in 2012 “as slowing growth in production contributes to tighter domestic natural gas markets” next year.

Extremely hot weather across much of the country last month (see related story) contributed to an increase in gas consumption for electricity generation compared with July 2010, according to EIA, which expects a 3.5% increase in U.S. gas-fired electricity generation this year and a 3.3% increase in 2012.

“Nevertheless, the estimated 246 Bcf increase in natural gas working inventories during July 2011 was 21 Bcf higher than during the same month last year. Natural gas working inventories ended July 2011 at 2.8 Tcf, about 7%, or 194 Bcf, below the 2010 end-of-July level. EIA expects that working natural gas inventories will build strongly, approaching last year’s high levels by the end of this year’s inventory build season,” EIA said.

Projected total consumption is expected to increase 1.8% to 67.4 Bcf/d in 2011 and increase slightly further to 67.8 Bcf/d in 2012, with expected growth in the industrial and electric power sectors offsetting projected declines in residential and commercial consumption due to anticipated warmer winter weather.

The EIA sees marketed natural gas production expanding by 5.9% to 65.5 Bcf/d this year from nearly 61.8 Bcf/d in 2010. “This growth is centered in the onshore production in the Lower 48 states, which more than offsets projected declines in the federal Gulf of Mexico. EIA expects production will continue to grow in 2012, but at a slower pace, increasing 0.6 Bcf/d (0.9%) to an average of 66.1 Bcf/d,” the agency said.

Growing domestic gas production has reduced reliance on imports and contributed to increased exports, EIA said. Pipeline gross imports of natural gas are expected to decline by 4.3% to 8.7 Bcf/d this year and by another 3.7% to 8.4 Bcf/d in 2012, while pipeline gross exports to Mexico and Canada are likely to average 4.3 Bcf/d in 2011 and 2012, compared to 3.1 Bcf/d in 2010.

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