Pointing out that there is adequate natural gas supply that can come to market with $3.00 wellhead prices, Los Altos, CA-based Altos Management Partners said that it expects natural gas prices during the winter of 2002-2003 to be in the $3.00-3.25/MMbtu range, far below the current Nymex projection.

Based on the company’s North American Regional Gas (NARG) model, Tom Choi, vice president of Altos, said that storage inventory and withdrawal capacity should be adequate to offset price increases due to rising winter demand. Altos’ NARG is a fundamental market model of the natural gas industry in North America that computes supply-demand equilibrium for hundreds of hubs and multiple forward time points.

Choi said even in Altos’ high-price scenario, in which U.S. productive capacity continues its decline by about 6% and industrial demand shed last year is recaptured, winter prices will rise to about $3.50/MMbtu. Noting the high Nymex prices, Choi added, “Futures prices historically have been some of the worst predictors of the market. We see a softening of prices as capital markets return to normal and E&P companies pursue projects they have been [delaying in order] to shore up their balance sheets. There is a lot of gas that can come online at current prices.”

Altos said the NARG model — including resource assessments from the United States Geological Survey — shows ample supply that can enter the market at a wellhead price of $3.00. Choi said he sees the market searching for a long-term anchor on which to hang a price forecast. “Market fundamentals will overtake technical gyrations,” he said. “U.S. prices will be driven by the cost and availability of the North American gas resource base. Everything else is secondary.”

Formed in 1995, Altos provides quantitative services-data and information to companies. The company said it provides high technology tools and techniques needed to forecast price, cost, and risk; exploit price differentiation as a competitive weapon; operate facilities to realize maximum margins. For more information on Altos’ NARG model, visit www.altosmgmt.com.

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