Domestic natural gas production will be at an all-time high this year and is expected to break that record for a third consecutive year in 2013, thanks in large part to the nation’s booming shale plays, the U.S. Energy Information Administration (EIA) said in its Short Term Energy Outlook for September.

Total marketed production, which was 66.22 Bcf/d in 2011, will reach 68.86 Bcf/d this year, despite a recent slowdown caused by Hurricane Isaac’s trip through the Gulf of Mexico, EIA said. And while the rate of growth will slow in 2013, production will again set a record at an estimated 69.32 Bcf/d, according to the agency.

“Total marketed production of natural gas grew by 4.8 Bcf/d (7.9%) in 2011. This strong growth was driven in large part by increases in shale gas production,” EIA said. “EIA expects continued year-over-year growth in 2012 of 2.6 Bcf/d. EIA, however, expects a small drop in production in coming months, reflecting both losses from hurricanes and declines related to recent drops in the rig count…EIA forecasts that production growth will slow to 0.5 Bcf/d in 2013, as the slowdown in drilling activity is offset by growth in production from liquids-rich natural gas production areas such as the Eagle Ford and wet areas of the Marcellus Shale, and associated gas from the growth in domestic crude oil production.”

Natural gas spot prices averaged $2.84/MMBtu at the Henry Hub in August, down 11 cents/MMBtu from the July average and $1.21/MMBtu (30%) lower than the August 2011 average, according to the report.

“While abundant supplies have kept prices relatively low, a hot summer and associated increases in demand for natural gas for power generation contributed to the increase in prices in July,” EIA said. The Henry Hub price is expected to average $2.65/MMBtu this year, with prices remaining below $3.00/MMBtu until December and climbing to an average $3.34/MMBtu in 2013.

EIA expects gas consumption will average 69.8 Bcf/d in 2012, an increase of 3.2 Bcf/d (4.8%) from 2011. “Large gains in electric power use in 2012 more than offset declines in residential and commercial use,” EIA said. “Projected consumption of natural gas in the electric power sector averages 25.2 Bcf/d in 2012, 21% higher than in 2011, primarily driven by the improved relative cost advantages of natural gas over coal for power generation in some regions.” Total natural gas consumption is expected to increase by 0.2 Bcf/d in 2013, with increases in residential, commercial and industrial consumption offset by declines in the power sector.

Because of the projected increase in natural gas prices relative to coal, EIA said it expects the recent trend of substituting coal-fired electricity generation with natural gas generation to slow and likely reverse over the next year. “From April through August 2012, average monthly natural gas prices to electric generators increased by 34%, while coal prices fell slightly. EIA expects that coal-fired electricity generation will increase by 9% in 2013, while natural gas generation will fall by about 10%,” EIA said.

Working natural gas inventories are at historically high levels for this time of year. As of Aug. 31, working inventories totaled 3,402 Bcf, according to EIA’s Weekly Gas Storage Report, 395 Bcf more than last year’s level and 329 Bcf above the five-year average. EIA said it expects that inventory levels at the end of October will set a new record of 3,950 Bcf, slightly lower than the 3,954 Bcf the agency forecast in its previous outlook (see Shale Daily, Aug. 10).