Given continued "freakishly" mild winter weather, gas prices are likely to dip to $7 by March, according to energy consultant Stephen Smith of Stephen Smith & Associates. Smith is forecasting a season ending gas storage level of 1,570 Bcf, compared to 10-year norms of about 890 Bcf, and a March 31 Henry Hub gas price of about $6.75-7.50.
"January is going to be maliciously mild," Smith noted in an interview with NGI. "The week ending Jan. 13 heating degree days were about 32% below normal. The week of Jan. 6 was about 28% below normal. As of last Friday, we estimated that the week of Jan. 20 would be about 18% below normal and the week of Jan. 27 about 13% below normal. The month should end up about 22-23% below normal, which is what's killing the price.
"The problem is if you have January, which is the key month [in terms of gas demand], and about 5-10 days in December that were essentially mild, or freakishly mild, that's awfully hard to overcome."
Smith said even with normal weather in February and March, gas storage levels still should end the heating season above 1,500 Bcf, compared to 1,239 Bcf last March 25, 1,014 Bcf on March 26, 2004, and 654 Bcf in March 2003. Ron Denhardt of consulting firm Strategic Energy & Economic Research Inc. said he's predicting season ending storage near 1,300 Bcf compared to a five-year average of 1,041 Bcf.
Crude oil and residual fuel oil prices have kept a floor under gas prices. The recent tensions with Iran over nuclear problems, violence in Nigeria and the death of the Kuwaiti leader have caused oil prices to surge. But Smith said that floor under gas prices should continue slowly dropping.
The Henry Hub gas price premium compared to New York resid prices ballooned out to $7 in December but has dropped sharply to about $1.30 currently. "I've got the spread hitting almost zero [by the end of March]," said Smith. Henry Hub gas prices haven't fallen below New York resid prices in the last three years.
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