Forget about $3/Mcf natural gas prices anytime this year because the U.S. gas surplus is growing and the chances of substantial increases in demand from power generators are fading. That's the quick sketch drawn Wednesday by Teri Viswanath, senior natural gas analyst at BNP Paribas, the global institutional banker.
"Three-dollar gas is off the table until next winter," Viswanath said to close a 45-minute webinar she conducted as part of a series by the bank on gas commodity pricing strategies. "With prices trading about 50 cents below their highest levels last month, it might come as a surprise that we actually see further downside risk ahead this summer for natural gas prices.
"My sense is now that there is more [price/demand] weakness ahead," she said.
Viswanath predicted that the market will set a new "calendar low" gas price this month. "The restocking [gas storage] effort this year has accelerated and shows little sign of slowing." She said that at the end of last month working gas in storage "surpassed the five-year average level, marking the first inventory surplus since November 2013."
Her conclusion is that there are few or no indicators that producers will be curtailing production ahead of the injection season. The prospect of generally cooler weather will not see substantial increased demand in the power sector, and industrial demand is continuing to lag.
"The industrial demand we have seen this year is much weaker than what we witnessed over the past three years, meaning more lifting is needed to rebalance supply-demand in the power sector," Viswanath said. "I do see more downward price pressure."
Viswanath has changed her tune since early this year when she was predicting that U.S. natural gas prices could face pressure at the end of the heating season due to a lack of cold weather, but growing industrial demand and a surge in power plant retirements could offer some relief later in the year (see Daily GPI, Jan. 20).
As a price and power demand litmus, she cited Texas as being a key indicator, accounting for 18% of the nation's summer power demand. "If it [hot weather] doesn't happen in Texas, it [power demand growth] won't happen," Viswanath said, adding that the state is about 2 Bcf/d below what was being burned for power generation three years ago.
BNP Paribas offered a 2015 natural gas price estimate of $2.85/Mcf in April, and Viswanath said she is "a little concerned" about its estimate of $2.75 for the third quarter this year. "We expect to see the market regress to below $2.50/Mcf this month, and that gives rise to risk for whether we are going to see an average delivered price of $2.75 in the next quarter."
Viswanath said the bank's "relatively high" estimate of $3.50 by the end of March is also at risk. Still, she said her estimates are that the price of gas is likely to rise by $1/Mcf next year (see Daily GPI, Feb.27).