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Moody's Cuts Natural Gas Price Assumptions Through 2015

North American natural gas prices should rise eventually on demand from new petrochemical plants and the start-up of export facilities, but it won't be until later this decade, Moody's Investors Service analysts said Thursday in cutting price assumptions through 2015.

Average spot price assumptions were reduced also for the two benchmark prices for Brent and West Texas Intermediate (WTI) crude.

The Henry Hub natural gas price was reduced to $3.75/MMBtu from a June assumption of $4.25/MMBtu. Moody's assumptions for 2016 and thereafter remain unchanged at $4.00/MMBtu.

North American gas prices "have dropped after unusually mild summer weather, which reduced the use of air conditioning -- a key factor in the region's summer natural gas demand -- and permitted above-normal storage injections, necessary after last winter's extreme cold significantly depleted storage," analysts said.

"In the longer term, power producers -- the greatest market for natural gas in North America -- will gradually increase their demand for natural gas, switching from coal as new environmental regulations take effect, but natural gas prices will stay high enough to discourage near-term switching."

Moody's assumptions, which are different from forecasts, join a long list of federal and private prognosticators that have over the past few weeks said they expect to see lower gas prices through 2015 (see Daily GPI, Sept. 11; Sept. 15; Sept. 8).

The price assumptions used by Moody's represent baseline approximations that the credit ratings agency uses to evaluate risk when analyzing credit conditions within the oil and natural gas industry. Credit ratings analysts periodically revise their price assumptions to better calculate future financial metrics for companies in the industry.

North American shale and unconventional oil development and production "continue at a rapid pace," the analysts said. New pipeline and transportation infrastructure are delivering "crude more easily from producers to their downstream customers, reducing bottlenecks and limiting price differentials between WTI and the Brent world benchmark."

To that end, Moody's reduced WTI and Brent assumptions it uses for ratings purposes each by $5.00, with WTI now set at $85.00/bbl and Brent at $90.00/bbl through 2015. Price assumptions for 2016 and thereafter are $90/bbl for Brent and $85/bbl for WTI, unchanged from previous assumptions.

Natural gas liquids (NGL) price assumptions also were reduced, to $30.00/boe through 2015 and thereafter from a previous guidance of $34.00/boe, "amid a continued rapid buildup in the supply of NGLs and high levels of ethane rejection," analysts said.

Under a stress-case scenario, Moody's uses Brent and WTI prices of $60/bbl and Henry Hub natural gas prices of $2.50/MMBtu. NGLs have a stress-case price of $20.00/boe.

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