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Energy Prices Higher Than Expected

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Natural gas prices.
(Photo: ©iStockphoto.com/PaulFleet)

WASHINGTON — The Henry Hub spot price averaged $4.54 per MMBtu in June, 23 cents higher than the May average and 34 cents higher than forecast in last month’s report, according to the U.S. Energy Information Administration (EIA). The administration expects that the Henry Hub price will average $4.26 per MMBtu over the second half of 2011, as the inventory deficit relative to last year narrows, according to the latest report.

EIA expects that total natural gas consumption will grow by 2.0% to 67.4 billion cubic feet per day (Bcf/d) in 2011. The latest projection of total consumption drops slightly in 2012 to 67.3 Bcf/d, reflecting expected continued growth in the industrial and electric power sectors with a decline in residential and commercial consumption due to a forecast decline in heating degree-days in the Midwest and West.

EIA expects natural gas production to average 65.4 Bcf/d in 2011, a 3.6 Bcf/d (5.8%) increase over 2010. Much of this growth is expected to occur during the first three quarters of the year, the administration says, with a more moderate increase in the fourth quarter. Production growth is forecast to continue at a much slower pace in 2012, increasing 0.6 Bcf/d (0.9%) to average 66.0 Bcf/d.

Growing domestic natural-gas production has reduced reliance on natural gas imports and contributed to increased exports, EIA says. The report shows that pipeline gross imports of natural gas will fall by 3.9% to 8.7 Bcf/d during 2011 and by 4.0% to 8.4 Bcf/d in 2012.

On July 1, working natural gas in storage stood at 2,527 Bcf, 214 Bcf below last year’s level in late June. EIA expects that inventories, though currently lower than last year, will come close to last year’s levels toward the end of the 2011 injection season. Projected inventories surpass 3.8 Tcf at the end of October because of  high production rates and a milder summer relative to last year.

Meanwhile, crude oil spot prices fell from an average of $110 per barrel in April to $96 per barrel in June. But route drivers shouldn’t rejoice just yet, as EIA still expects oil markets to tighten with growing liquid fuels demand in emerging economies and slowing growth in non-OPEC supply maintaining upward pressure on oil prices. EIA projects an overall upward trend in West Texas Intermediate (WTI) spot prices, which averaged $79 per barrel in 2010, will average $98 per barrel in 2011 and $103 per barrel in 2012.

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