Assuming normal weather through January, and barring a major oil supply disruption during the period, Stephen Smith Energy Associates is forecasting a natural gas target price in the range of $5.50-$6/MMBtu for February Henry Hub bidweek prices.

In the “Monthly Outlook” issued on Tuesday, the Mississippi-based analyst predicted an “early winter risk premium,” that will “ebb and flow with the anticipated arrival of arctic cold fronts over the next six weeks. Then, by late January, markets typically will begin “paying more attention to storage surpluses and less attention to arctic cold fronts.”

Smith said with oil prices hitting all time highs, it has been a “very nervous year for the entire energy complex.” The North American gas supply and demand “are at least as tight” as the oil supply, and with seasonal demand, “this leads to some special concerns, as well as a special pricing seasonality.”

Based on already set Henry Hub bidweek prices, Smith said 4Q2004 averaged $7.10/MMBtu, and for the year gas averaged $6.15. “Our estimates for the four quarters of 2005 are $6.20, $5.40, $5.50 and $6.50/MMBtu, resulting in an average annual price of $5.90/MMBtu. We are forecasting an average price of $5.50/MMBtu for 2006.”

For oil and gas production, the monthly forecast noted that the rate of output decline “appears to have slowed” compared with the decline rate from January 2001 through June 2002. “We attribute this easing at least partially to production growth in the Barnett Shale, coalbed methane and the Rockies, in general.” Smith is forecasting a production decline rate for 2005 at about 1%.

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