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Construction at Cheniere Energy Inc.'s liquified natural gas (LNG) terminal is seen in this aerial photograph taken in Sabine Pass, Louisiana, U.S., in December 2013.

Lower prices and increasing competition from the United States are expected to add to the woes of Canadian natural gas producers over the summer, but the picture then brightens, according to a report from the National Energy Board.

The federal agency said Thursday it expects natural gas prices to fall from an average of about $2.70 (U.S.) per million British thermal units in 2015 to an average of $2.50 (U.S.) this year, and then gradually rise to average $3 (U.S.) in 2018. Prices were almost $5 (U.S.) in early 2014.

Paul Mortensen, the NEB's director of energy supply, said short-term pain for Canadian producers will pay off in higher prices next winter.

"We've been on this declining trend on price since 2014 so we think with this summer it's going to get more negative before it gets better in terms of storage being pre-filled," he said. "But then that potentially sets us up for a gradual increase in prices through the winter."

He said a warm winter reduced demand for natural gas in North America. Canadian storage has already been refilled to about 82 per cent, higher than normal for this time of year and that means demand will be lower this summer.

"What that means to me is that there's likely going to be a need for producers to pull gas production offline before we get to October or at least ratchet it down before we hit full storage," he said.

Analyst Kris Zack of Desjardins Capital Markets said in a report to investors that stronger prices Thursday were likely a short-term overreaction to a smaller-than-expected weekly natural gas storage build in the United States. The near month contract price rose to a nine-month high of about $2.60 (U.S.) per mmBtu.

"Bottom line, the next few months will be critical for working off the massive storage overhang ahead of winter, and higher prices could ultimately prove self-defeating through reduced summer power burn," he wrote. He pointed out that higher gas prices will discourage U.S. power producers from switching from coal to gas to generate electricity.

The NEB forecasts Canadian natural gas production, which peaked in 2005 at 17 billion cubic feet per day, will fall from 15 bcf/d in 2015 to 14.5 bcf/d in 2018, based on its report's mid-price-range scenario.

On Tuesday, the U.S. Energy Information Administration issued a report forecasting that the United States will become a net exporter of natural gas by 2018. It would be the first time since the 1950s because its production is expected to outgrow domestic consumption.

It said natural gas production from shale gas and tight oil plays now make up about half of the U.S. production. That proportion is expected to grow to 69 per cent by 2040 as output from the new plays doubles to 29 trillion cubic feet per year.

The NEB said natural gas exports to the U.S. Midwest continued to decline in 2015 as pipeline reversals and expansions brought more U.S. gas into Central Canada. It said Canadian gas exports to the Western U.S. rose as higher temperatures increased demand for gas-fired power generation to meet air conditioning demand.

It pointed out that development of a Canadian liquefied natural gas export industry would help gas producers, but it's unclear if any of the nearly 20 proposed projects will be sanctioned by proponents in the near future.

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