<article><p class="lead">The recent rally in natural gas prices should continue through the second half of 2016, lifting production, the US Energy Information Administration (EIA) said today.</p><p>Henry Hub spot prices in June averaged $2.52/mmBtu, up by a third from the previous month and the highest since September 2015, on high power sector demand, growing gas exports and slumping production. </p><p>The price increase could make drilling more lucrative for large gas producers that sidelined rigs when prompt-month prices collapsed to 17-year lows in March below $1.65/mmBtu. At the same time, higher prices could crimp demand by spurring electric utilities to dispatch more coal-fired power instead of gas. </p><p>Marketed natural gas output, which excludes volumes lost during production, will increase this year to 79.53 Bcf/d (2.3bn m³/d), up by about 1pc from the record high in 2015 of 78.77 Bcf/d, the EIA said today in its monthly <i>Short-Term Energy Outlook</i>. </p><p>US marketed output did decline in April to 78.8 Bcf/d, down by 300mn cf/d from March and from a year earlier. Estimated gas production for June averaged 79.1 Bcf/d, down by nearly 1 Bcf/d from February's record high, the EIA said. </p><p>But the US rig count, a bellwether for oil and gas development, has increased for five of the last six weeks, rising by 9pc over that period to 440, according to Baker Hughes. Gas-directed drilling represented about a fifth of the total rig count and has increased by 11pc since the end of May to 88 rigs. </p><p>Gas consumption has climbed this year as electric utilities turned to low-cost gas-fired power to meet customer demand. US consumption in 2016 should average 76.5 Bcf/d, an increase of about 2pc from 2015, the EIA said. Gas use for power, the largest consuming sector of the US market, is projected to rise this year by 4.9pc from a year earlier. </p><p>The increase in consumption this year has helped curb injections into gas storage, bringing inventories closer to average levels. </p><p>US stockpiles, which can ease concerns about spikes in demand or supply shortfalls, rose at the start of this month to 3.179 Tcf, 23pc higher than the five-year average. That gap has narrowed from 54pc since the 1 April start of the injection season, when gas stockpiles are replenished ahead of winter. </p><p>The EIA said it expects inventories to enter the 2016-17 winter on 31 October at an all-time high of 4.022 Tcf. That end-of-season estimate was revised lower by 139 Bcf from the agency's June outlook. </p></article>
