By RYAN DEZEMBER This was supposed to be the year that low natural-gas prices prompted a reduction of supplies. Analysts have long said that a sustained period of gas priced below $5 per million British thermal units would slow the boom in drilling, curtailing output. So far, the opposite has occurred, leading to the inevitable conclusion that natural-gas futures aren't going to gain much, if any, ground above the $5 mark. On Friday, natural-gas futures for August delivery ended at $4.399/MMBtu on the New York Mercantile Exchange, down 3.2% on the week. Production from U.S. shale formations, deeply buried rocks, came onto the scene a few years ago and sent prices tumbling. Production in the lower 48 states reached a shale-era record in March, and topped that mark in April. In response, the Energy Information Administration says it expects 2011 output to total 23.8 trillion cubic feet, which would shatter the U.S. production record set in 1973. .Demand-side conditions have been favorable for a push higher in prices. Imports from Canada are down. Meanwhile, exports to Mexico are up. Balmy summer weather arrived early, coinciding with spring-maintenance shutdowns at several nuclear-power plants. That led to more demand for gas-fired electricity at a time of year when use is usually low. In addition, the heat wave in much of the U.S. is causing a short-term demand spike. While those factors have helped keep prices above $4/MMBtu since mid-March, they weren't enough to push prices beyond the $5/MMBtu ceiling that's developed "due to unrelenting production growth," said analysts with Houston investment bank Simmons & Co. in a recent report. This level of production looks set to continue beyond 2011, as companies flush from high oil prices rush to tap newly discovered shale formations and install pipelines and processing plants to bring to market gas that is now being flared. And just because companies are redirecting drilling rigs toward oil deposits doesn't mean they aren't unleashing an abundance of gas in the process. Meanwhile, BHP Billiton (ticker: BHP) recently announced it will spend $12.1 billion to buy Houston-based Petrohawk Energy (HK), a company whose reserves are 87% gas. BHP says it plans to ramp up drilling in the Texas and Louisiana energy fields it will acquire in the deal, boosting spending from $2.85 billion to as much as $5 billion a year by 2015. Market participants closely watch rig counts, such as the data published by oilfield-service company Baker Hughes, to predict where production is headed. The total number of rigs drilling for natural gas in the U.S. is currently 889, down by 93 rigs from a year agoâwhile the number of rigs aiming for oil has nearly doubled, to 1,021. That might seem bullish for natural gas, but in recent years, more than 22% of all U.S. natural-gas production has come from oil wells. Indeed, the rush to plumb onshore reserves for crude is yielding more gas than some distribution systems can handle. Each day in April, for example, producers in North Dakota's Bakken shale formation flared about 100 million cubic feet of gas that local pipelines and processing facilities couldn't handle, say analysts at Bentek Energy. That gas, enough to fuel 500,000 typical U.S. homes a day, will eventually hit the market when infrastructure construction catches up to drilling. In all, Simmons estimates that supply is exceeding demand by about 1.1 billion cubic feet a day this year, and will do so at a rate of 0.6 bcf per day in 2012. The likely effect: prices will stay in the $4 to $5 rangeâwith potential forays below $4 if weather conditions moderateâthrough the next year. . RYAN DEZEMBER covers energy markets at Dow Jones Newswires.