Raymond James Boldly Predicts $10 Gas Next Winter
Many industry analysts have been steadily raising their gas
price forecasts because of the year-long drilling slump and its
potential impact on gas deliverability, but St. Petersburg,
FL-based Raymond James & Associates went out on a limb last week
predicting sharp price spikes above $10/Mcf at the Henry Hub next
winter and an average of $3/Mcf at the hub next year.
"Given that we think there is a significant potential for spot
natural gas shortages next winter (winter of 1999/2000), we believe
there is substantial potential for U.S. natural gas prices to
temporarily move into the double-digit range," Raymond James energy
analyst J. Marshall Adkins said in a gas market report. "Perhaps
more importantly, this kind of supply shock would likely awaken the
natural gas markets to the true underlying gas supply and demand
fundamentals. Such an awakening should drive average 2000 natural
gas prices well above levels we have seen in the past. We believe
that once the U.S. gas markets receive their wake-up call this
winter, average gas prices above $3/Mcf in 2000 are very
Adkins noted that simply a return to normal temperatures next
winter will boost gas demand 8% compared to last winter. Meanwhile
a conservative prediction on gas supply shows at least a 2% drop,
or about 1.2 Bcf/d. Some producers, such as Enron Oil & Gas
Chairman Forrest Hogland, are expecting much larger declines of up
to 3 Bcf/d.
With strong demand and short supply (even including a 5% rise in
imports from Canada), the existing storage surplus will be depleted
rapidly, the Raymond James report stated. The American Gas
Association reported another week of minute injections last
Wednesday. On April 23, there was 1,374 Bcf of working gas in U.S.
storage facilities and the surplus compared to last year was down
to only 175 Bcf, the AGA said. Raymond James expects there to be
the typical 3,100 Bcf of working gas in storage by November, but
with the decline in wellhead deliverability, withdrawals from
storage next winter will far exceed the normal pace.
"Our numbers suggest that we will exit the winter setting
all-time record lows for natural gas storage," Adkins said,
predicting storage will end the winter with only 270 Bcf of working
gas, a historic low that would be difficult to reach. There's a 70%
probability storage will end the winter heating season below 700
Bcf and "history suggests that ending storage below 700 Bcf should
result in $10/Mcf or higher gas prices."
"What if our base case is wrong" Raymond James asked, and winter
temperatures are 5% warmer than normal? Gas storage still would end
the winter below 700 Bcf. And given the incomprehensible
possibility that winter temperatures could be 5% colder than
normal, Raymond James said there would be a need to draw down
storage to negative 141 Bcf of working gas by March 31. "In either
case, we have a problem."
©Copyright 1999 Intelligence Press, Inc. All rights
reserved. The preceding news report may not be republished or
redistributed in whole or in part without prior written consent of
Intelligence Press, Inc.