Management consulting and engineering firm R.W. Beck Inc. raised its Henry Hub natural gas price forecast for the year to $6.40/MMBtu, a 13% increase over its forecast during the first quarter of $5.68. Higher prices are driven by high oil prices and lower-than-expected production, the firm said.
"January prices behaved close to R.W. Beck's expectations, but the return of world crude oil prices to around $50/bbl caused us to look even more closely at the relationship between natural gas and oil prices," said Catherine Elder, leader of Beck's Natural Gas & Fuels practice. "In retrospect, we think natural gas prices could be higher and that the high storage inventory that prevailed over most of the winter helped keep prices lower than what they otherwise might have been."
Other factors contributed to the forecast of higher near-term prices. Withdrawals from storage turned out to have been higher than normal, even after adjusting for winter, which was 6.5% milder than normal. Also, although the gas-directed rig count continues to increase, production from new wells is still being offset by declines from existing wells.
"Production per well remains lower than forecast and the large inventory in storage made up the difference," said Elder. "Our notion of when new supply increases production is pushed further out a bit."
Over the long-term, prices are expected to decline from 2006 through 2011 as the market rationalizes and production increases. Post 2011, prices are expected to gradually increase to $4.50/MMBtu by 2024, Beck said. A summary of the forecast is available at http://www.rwbeck.com/energyforecasts .
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