The recent rash of producer spending cuts (see related story)comes at a time when the message on prices from the analystcommunity is pretty gloomy, too. “There’s not much holding [gasprices] up,” said Thomas J. Woods, Ziff Energy vice president forU.S. Gas Services. Woods said Ziff has been warning its clientsthat current prices are not supportable. “We had put out some earlywarnings in July when prices first frayed, and we said that therewas a very significant possibility that this would go [on].”
Ziff doesn’t release its price projections, but Woods concededcompared to its peers, Ziff Energy is “probably a lot moreconservative about gas prices.” Woods said he doesn’t think theNymex will average more than $2.00 for 1999, and it could benoticeably lower.
He noted in the aggregate, gas sales have been essentially flat.”There’s probably going to be no growth in gas sales for four orfive years on an aggregate basis.” December’s high storage levelssuggest to Woods there is more downward pressure on prices to come.”Sooner or later somebody is going to have to move that storage orsomebody is going to leave that gas in storage and pay thepenalty.”
And there is increasing pressure on processors and producers nowdue to low liquids prices relative to gas prices, noted Woods.Producers, who once were able to pay for processing with liquidsremoved from the gas stream, now are being asked to pony up withprocessing fees.
What remains to be seen, according to Woods, is whether priceswill ease down further or plummet. “The question is what’s themagic witching price for the strip price going out 12 months thatwould really panic people. I would watch the December of 1999[contract] or January or February of 2000. If they can hold eventhough the market is plunging, then you’re going to have a softlanding. But if they start to not be able to hold, then you’regoing to have a hard landing.”
Not so pessimistic is PaineWebber’s Ron Barone. “We’re still at$2.40 [composite spot wellhead price] for the year, but we could bea bit on the high side because of the surplus gas in storage andthe overhang. I’m not going to cut [the estimate] yet because Ithink it’s a doable number.” Barone said he thinks this summer’sprices will be in the low $2.00 range, noting there will be a lotof gas-fired capacity coming on line, “and I think that gas-firedcapacity will push up demand.” Further, recent declines in drillingactivity will begin to take their toll on productive capacity,further tightening supply, he said.
Gas analyst Ron Denhardt of Burlington, MA-based WEFA Inc. saidhis firm is forecasting $2.02/MMBtu at the Henry Hub for 1999. Thebig market movers in “the coming months are going to be clearlystorage and weather. I guess we were assuming a somewhat warmerthan normal January through March, and we came up with storage[inventory] 450 Bcf ahead of last year [for the first quarter]. Wesee that storage as being a big overhang.” Compounding thesituation is more hydropower due to greater rainfall in theNorthwest, growing gas supplies from the Northern Border expansionand low oil prices. Woods said oil already has captured significantamounts of the market in the East.
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