Adds latest prices

By Harshit Verma

June 17 (Reuters) -U.S. natural gas futures dropped over 3% on Monday to their lowest in one-and-a-half weeks on forecasts for a steeper than previously expected rise in gas supply this week and increasing coal use over gas in the U.S. energy mix.

Front-month gas futures NGc1 for July delivery on the New York Mercantile Exchange fell 9.3 cents, or 3.2%, to settle at $2.788 per million British thermal units, after falling over 4% earlier in the session.

"Coal-fired generation jumped over the past week in anticipation of this widespread heat wave which is expected to result in higher electric demand over the next two weeks. The stronger coal generation will displace some of the natural gas generation, which is also fueling the bearish price response," said Robert DiDona of Energy Ventures Analysis.

Other factors weighing on prices include rising U.S. Lower 48 production, with Appalachia output surging 0.5 billion cubic feet per day (bcfd) over the weekend, which coincides with the start of flows on the Mountain Valley Pipeline (MVP), Energy Aspects analyst David Seduski said.

The nation's biggest gas producer, EQT's EQT.N daily production has jumped by 0.4 bcfd since MVP came online, Seduski added.

"If current heat persists, storage surplus will erode quickly, pushing gas prices higher. Recent price retreat is likely a temporary breather," according to Zhu Zhen, managing consultant at C.H. Guernsey and Company in Oklahoma City.

Meanwhile, a tropical system developing in the southern Gulf of Mexico, which has a 70% chance of turning into a cyclone, is forecast to lower temperatures across Texas this week and lower natural gas demand in the ERCOT energy mix.

SUPPLY AND DEMAND

Financial firm LSEG said gas output in the Lower 48 U.S. states stood at an average of 98.1 bcfd so far in June, the same as the 98.1 bcfd in May. That compares with a monthly record of 105.5 bcfd in December 2023.

Forecast for total U.S. supply for the ongoing week were raised from 104.7 bcfd on Friday to 106.1 bcfd on Monday.

Meteorologists projected weather across the Lower 48 states would remain hotter than normal through at least July 2.

LSEG forecast that heat would boost gas demand in the Lower 48, including exports, from 96.6 bcfd this week to 102.2 bcfd next week. The forecasts for this week however, were lower than LSEG's outlook on Friday.

Gas flows to the seven big U.S. LNG export plants, meanwhile, were at 12.9 bcfd so far in June, the same as the 12.9 bcfd in May.

That, however, remains well below the monthly record high of 14.7 bcfd in December 2023 due to ongoing plant and pipeline maintenance at several Louisiana facilities, including Cameron LNG, Cheniere Energy's LNG.N Sabine Pass, Venture Global's Calcasieu Pass.

Flows to the 4.5-bcfd Sabine, the nation's largest LNG export plant, were on track to rise from 3.7 bcfd on Friday to 4.4 bcfd on Monday, according to LSEG data. That compares with an average of 4.1 bcfd over the prior seven days.

Reporting by Harshit Verma in Bengaluru; Editing by Josie Kao and Lisa Shumaker

For gas data on LSEG's Eikon type ENERGY in the search bar and then go to the GAS drop down and the NORTH AMERICA drop down.

For Interactive Map, type 'Interactive Map' in the box at upper left of the Eikon terminal

For graphics on Baker Hughes rig counts, see: http://graphics.thomsonreuters.com/15/rigcount/index.html

For next-day SNL U.S. gas prices, see: 0#SNL-NG

For next-day SNL U.S. power prices, see: 0#SNL-PWR

For U.S. natgas price and storage polls, see: NGAS/POLL

For U.S. nuclear power outages, see: NUKE/

For U.S. Northwest hydro power report, see: NWRFC

For U.S./Canada natural gas rig count vs Henry Hub futures price, see: http://tmsnrt.rs/2eT9k44

For the U.S. natural gas speed guide, see: USGAS

For the U.S. power speed guide, see: USPOWER

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NYMEX Henry Hub futures only 0#1CFTC023651

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