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Fitch Sees Natural Gas Range-Bound Between $3.00-4.50

Two weeks after raising its U.S. natural gas price deck due to slightly better fundamentals, analysts with Fitch Ratings on Wednesday made the bold statement that they expect natural gas prices to be rangebound over the "next few years."

In a short research note on the company's Fitch Wire credit market commentary page, the analysts said they expect natural gas prices to stay in a range between $3.00-4.50/Mcf at least through 2014.

"We expect prices will remain volatile due to weather impacts but should continue to be range bound over the next several years due to the substantial amount of oversupply that continues to affect the market and limited visibility on new demand to soak up that supply," the company said.

Fitch said it thinks power demand from coal/gas switching will provide a floor near $3.00 and producer response will provide a ceiling near $4.50. "For 2014, we are modeling Henry Hub to average $4.00/Mcf in our base case and a long-term base case price of $4.50/Mcf," analysts said.

The credit ratings firm pointed out that inventories are back inline with pre-2012 historical averages, but production is still at an all-time high and prices remain under pressure below $4.00. Even though the rig count in dry gas basins remains low, increasing associated gas production from liquids-rich fields in North America has more than offset the reduction and ethane rejection should continue to have a negative impact on prices, Fitch said.

"We expect some near-term incremental demand response, but major demand additions from coal and nuclear power plant retirements, LNG [liquefied natural gas] export, and new chemical plants are not due to be completed until 2016-2018," the company added.

 Late last month Fitch analysts slightly raised their domestic gas base-case price deck for Henry Hub to $3.75/Mcf in 2013, while maintaining its long-term gas prices at $4.50/Mcf (see Daily GPIJuly 30). "The uptick reflects a moderate improvement in prompt natural gas market conditions, created by the combination of increased demand (primarily residential and commercial), and a plateauing of gas production," the analysts said at the time.

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