Following surging natural gas prices in July, the Energy Information Administration (EIA) tacked on 20 cents to its expected 2021 average Henry Hub spot price in updated projections published Tuesday.

In the latest edition of its Short-Term Energy Outlook (STEO), the agency said it now expects Henry Hub spot prices to average $3.42/MMBtu for all of 2021, up from $3.21 predicted a month earlier. The updated EIA forecast includes an average Henry Hub price of $3.71 for the third quarter.

EIA is raising its expectations for the national benchmark after prices soared to an average $3.84 in July, a nearly 60-cent month/month increase from the June average of $3.26. The agency modeled domestic consumption of 75.8 Bcf/d in July, up 3.9 Bcf/d month/month, attributable to higher demand in the power sector.

“The relative share of fossil-fuel electricity generation from natural gas was greater than coal in the eastern United States…in July despite relatively high natural gas prices,” researchers said. “Typically, higher natural gas prices will prompt gas-to-coal switching for electricity generation.”

As one example, EIA said natural gas saw its share of fossil-fuel generation fall to 51% in November and December of 2018, when prices rose above $4. That was down from a 56% share from February through September 2018, when prices were below $3.

In the first half of 2020, natural gas had a 69% share of fossil-fuel generation as Henry Hub tanked below $2.

“For the same period in 2021, natural gas made up a 60% share of fossil fuel generation, and Henry Hub prices averaged $3.25,” according to EIA. “Since March 2021, the Henry Hub price has steadily increased, approaching $4, yet the natural gas share of fossil-fuel generation has remained higher than 60%.”

EIA pointed to the longer-term decline in coal-fired generating capacity and increases in natural gas-fired capacity as contributing factors behind the relative lack of gas-to-coal switching this year.

Natural gas storage ended July at close to 2.8 Tcf, 6% behind the five-year average, according to the updated STEO. Inventories are expected to finish the injection season at 3.6 Tcf, or 4% below the five-year average.

U.S. dry natural gas production is on track to average 92.9 Bcf/d during the second half of 2021, up from 91.4 Bcf/d in the first six months of the year. Production is then set to rise to 94.9 Bcf/d in 2022, a result of “natural gas and crude oil prices, which we expect to remain at levels that will support enough drilling to sustain production growth,” researchers said.

U.S. natural gas consumption is now expected to average 82.5 Bcf/d for 2021 overall, down 1.0% from 2020 levels. Consumption is set to climb back to 83.8 Bcf/d in 2022. Coinciding with higher production next year, EIA expects Henry Hub spot prices to average $3.08 in 2022.