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EIA expects natural gas price, LNG exports to drive production recovery


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EIA expects natural gas price, LNG exports to drive production recovery

TheHenry Hub spot price rose in June to its highest monthly average sinceSeptember 2015 as natural gas production declined and demand for natural gasfor power burn increased. Prices will continue to rise and contribute to aproduction reversal in the second half of 2016, the U.S. Energy InformationAdministration said.

TheHenry Hub spot natural gas price averaged $2.59/MMBtu for June, up 67cents/MMBtu from the average price in May. The natural gas price will rise to a$2.36/MMBtu average in 2016 and $2.95/MMBtu in 2017, the EIA said in its latest"Short-term Energy Outlook."

Naturalgas production at 78.8 Bcf/d in April was 0.3 Bcf/d below the level in Marchand in April 2015. The EIA expects production to average 79.1 Bcf/d in June,down almost 1.0 Bcf/d from the record-high daily average production inFebruary, but as the price of natural gas rises, and with an increase in LNGexports, production is expected to rise by 1.0% in 2016 and by 2.4% in 2017.

TheEIA projects LNG gross exports will rise to an average of 0.5 Bcf/d in 2016,with the startup of Cheniere's Sabine Pass LNG liquefaction plant in Louisiana,which sent out its first cargo in February 2016. Gross LNG exports are seenaveraging 1.3 Bcf/d in 2017, as Sabine Pass ramps up capacity, the EIA said.

Pipelineexports to Mexico have risen and are expected to increase by 0.7 Bcf/d in 2016,but are expected to fall by 0.2 Bcf/d in 2017 to an average of 5.3 Bcf/d.

Indomestic consumption, the EIA sees averages at 76.5 Bcf/d in 2016 and 77.7Bcf/d in 2017, compared with 75.3 Bcf/d in 2015.

The2016 consumption gains are mainly attributed to increases in electric powersector use, the EIA said. Forecast electric power sector use of natural gasincreases by 4.9% in 2016, then declines by 1.4% in 2017, as rising natural gasprices contribute to increasing coal use for electricity generation.

Industrialsector consumption is expected to increase by 2.7% in 2016 and by 1.5% in 2017,as new fertilizer and chemical projects come online.

Innatural gas inventories, at 2,494 Bcf at the end of March, supply was at thehighest end-of-withdrawal-season level on record. During May and June,injections have been somewhat lower than the previous five-year average and asof July 1, natural gas inventories were at 3,179 Bcf. Even withlower-than-average storage injections, the EIA forecasts natural gasinventories to be 4,022 Bcf at the end of October 2016, which would be thehighest level on record for that time of year.