EIA: Higher US Gas Production Expected for 2011

The U.S. Energy Information Administration raised its forecast for natural-gas production for 2011, and said inventories are expected to come close to last year's record levels this fall.

The EIA also expects demand for gas to be slightly stronger than previously expected.

U.S. gas production is expected to average 65.4 billion cubic feet a day in 2011, up 5.8% from last year. The forecast was up from last month's prediction of 4.5% growth in output, according to the agency's monthly Short Term Energy Outlook released Tuesday.

"Growing domestic natural gas production has reduced reliance on natural gas imports and contributed to increased exports," the EIA said.

That increase in production is partly due to drilling to access gas in shale rock formations, where output has shot up in recent years.

Pipeline gross exports to Mexico and Canada are expected to average 4.2 Bcf/d in 2011, up from 3.1 Bcf/d in 2010, while liquefied natural gas imports are seen falling to 1 Bcf/d, from 1.2 Bcf/d in 2010, the agency said.

Production continues to grow faster than consumption. Total gas consumption is forecast to increase by 2% in 2011 to 67.4 billion cubic feet a day, on higher demand from industrial and electric power consumers.

Consumption is expected to drop slightly in 2012 to 67.3 billion cubic feet a day. The EIA expects residential and commercial consumption to decline because cooler weather is expected in the Midwest and West, the EIA said.

Natural-gas prices at the benchmark Henry Hub should average $4.26 per million British thermal units over the second half of 2011, "as the inventory deficit relative to last year narrows," the EIA said. In June, prices averaged $4.54, or 34 cents higher than the forecast last month.

Uncertainty over natural gas prices is still lower this year compared with the same time last year, the statistical arm of the Department of Energy said.

Gas prices will likely come under downward pressure as inventories rise during the summer months, but prices are expected to average $4.54 in 2012 as production growth slows.

This year, inventories should remain high, however.

Inventories are forecast to surpass 3.8 trillion cubic feet at the end of October "because of current high production rates and a milder summer relative to last year," according to the report.