WASHINGTON (MNI) – The following is the first part of excerpts from
the Energy Information Administration’s July Short-Term Energy Outlook
published Wednesday:

U.S. Petroleum Product Prices.

Projected regular-grade gasoline retail prices rise from an average
$2.35 per gallon in 2009 to an average $2.77 per gallon in 2010 and
$2.90 per gallon in 2011. Forecast regular-grade pump prices average
$2.80 per gallon this summer, an increase of 36 cents from the previous
summer. On-highway diesel fuel retail prices, which averaged $2.46 per
gallon in 2009, average $2.98 per gallon in 2010 and $3.13 in 2011 in
this forecast.

Natural Gas

U.S. Natural Gas Consumption.

EIA projects total natural gas consumption will average 64.7
billion cubic feet per day (Bcf/d) and 64.8 Bcf/d in 2010 and 2011,
respectively. Estimated year-over-year consumption growth averaged 2.8
Bcf/d (4.3 percent) in the first half of 2010, with significant
increases in the electric power and industrial sectors. This growth is
expected to continue at a slower pace in the second half of the year
with an increase of 1.5 Bcf/d (2.6 percent). EIA’s projected
natural-gas-weighted industrial production index (a measure of
industrial activity in natural-gas-intensive industries) increases by
7.5 percent in 2010, leading to a 1.0 Bcf/d (5.9-percent) increase in
natural gas consumption in the industrial sector.

Projected natural gas consumption is virtually flat in 2011. The
projected 2.7 percent increase in the natural-gas-weighted industrial
production index and NOAA forecast of slightly colder weather next year
(1.4 percent increase in heating degree-days) contribute to consumption
growth in the residential, commercial, and industrial sectors in 2011.
However, this growth is offset by a decline in natural gas consumption
in the electric power sector because of the forecast increase in natural
gas prices relative to coal prices next year.

U.S. Natural Gas Production and Imports.

EIA expects total marketed natural gas production of 61.3 Bcf/d in
2010, an increase of 1.3 Bcf/d over 2009 levels. EIA projects a
continuing decline in Gulf of Mexico production, which is offset by
gains in onshore production. Forecast marketed production declines by
0.4 Bcf/d to 60.9 Bcf/d in 2011.

Federal Gulf of Mexico natural gas production falls by about 10
percent in both 2010 and 2011 as a result of hurricane outages, the
announced offshore drilling moratorium, and the decline in active
drilling rigs over the last 4 years. The estimated median outcome for
hurricane outages from June through November is a cumulative 166 Bcf
this year, compared with 19 Bcf in 2009. The offshore drilling
moratorium is projected to reduce Gulf of Mexico production by an
average of 0.05 Bcf/d for the last 6 months of 2010 and 0.25 Bcf/d for
2011.

Projected lower-48 onshore production increases by 2 Bcf/d (3.8
percent) in 2010 and 0.2 Bcf/d (0.3 percent) in 2011. According to
Baker-Hughes, natural gas rig counts have climbed from under 670 in July
2009 to about 950 in April this year and have remained relatively stable
since then.

Forecasted imports of liquefied natural gas (LNG) average 1.37
Bcf/d in 2010, a downward revision of about 0.14 Bcf/d from last month.
Projected imports increase to 1.52 Bcf/d in 2011. While imports are
expected to grow, higher prices in European and Asian markets will
likely divert LNG cargoes from the United States. EIA also forecasts
gross pipeline imports of 8.8 Bcf/d in 2010, a decrease of about 2.9
percent from 2009. EIA expects gross pipeline imports of 8.2 Bcf/d in
2011.

U.S. Natural Gas Inventories.

On June 25, 2010, working natural gas in storage was 2,684 Bcf.
This is 27 Bcf below last year’s level and 287 Bcf higher than the
5-year (2005-2009) average. EIA expects working gas inventories this
year to remain very near last year’s levels, reaching 3,810 Bcf at the
end of October 2010.

U.S. Natural Gas Prices.

The Henry Hub spot price averaged $4.80 per MMBtu in June, $0.66
per MMBtu higher than the average spot price in May. The forecast price
for the second half of 2010 averages $4.68 per MM Btu, $0.32 per MMBtu
higher than last month’s Outlook. The risk of hurricane outages and the
projected reduction in drilling activity combine to strengthen prices
through the year. A small decline in U.S. production alongside increased
consumption leads to higher prices in 2011; the projected Henry Hub
spot price averages $5.17 per MMBtu.

Uncertainty over future natural gas prices is lower this year
compared with last year at this time. Natural gas futures for September
2010 delivery for the 5-day period ending July 1 averaged $4.77 per
MMBtu, and the average implied volatility over the same period was 53
percent. This produced lower and upper bounds for the 95-percent
confidence interval of $3.16 and $7.18 per MMBtu, respectively. At this
time last year the natural gas September 2009 futures contract averaged
$4.00 per MMBtu and implied volatility averaged almost 76 percent. This
rendered the lower and upper limits of the 95-percent confidence
interval at $2.25 and $7.14 per MMBtu.

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** Market News International Washington Bureau: 202-371-2121 **

[TOPICS: M$U$$$,MI$OI$,MAUDS$]