“Systematically stronger gas demand,” sparked by a 4-5% increase over the same time last year in base (non-weather-related) power demand, should offset this year’s greater end-of-winter storage stocks, and keep mid-summer gas prices above $5, according to analyst Stephen Smith.
In his Weekly Gas Outlook, Smith projects a Henry Hub gas price of $5.10-$5.50 in mid-July — assuming normal weather and a West Texas Intermediate crude price of $32-$35.
The price forecast is 10 cents above the range mid-point in Smith’s previous forecast, due to “additional confirming evidence of the year-over-year improvement in weather-normalized gas demand.”
An additional 10 Bcf of gas demand last week could be only partly ascribed to gas filling in for about 30% lower hydro generation in the Columbia Basin in the Northwest. The analyst sees the hydro situation easing, “but the base component of power demand that is not related to weather will continue to be about 4-5% stronger than corresponding year-ago levels.”
Smith, of Stephen Smith Energy Associates in Natchez, MS, projects a 13 Bcf storage build for the week ending April 2, compared to a normal seasonal draw of 4 Bcf (based on 1994-1998 norms). Adding that projection to current figures will increase the current surplus over the 94-98 norm to 140 Bcf. “This surplus storage position is in sharp contrast to the storage deficit that existed at the same time last year.”
Smith said the average gas price last week of $5.56 compared to the $6.19/MMBtu weekly average Gulf Coast distillate price brought the gas to distillate price ratio to 90%, from 83% the previous week. “This ratio has moved from 79% to 90% over the last five weeks, ignoring the fact that the gas storage surplus increased by about 130 Bcf over the same period. This actual 130 Bcf storage increase, normalized for weather, would have been a 15 Bcf decrease. The ‘market’ has pushed up gas prices from $5.14 to $5.56 in the last five weeks — quite possibly on the realization that weather-normalized gas demand is stronger this year than last year.”
Information about the Weekly Gas Outlook is available at www.stephensmithenergy.com.
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