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R.W. Beck Sees Average Natural Gas Price for 2005 at $5.68/MMBtu

January 24, 2005
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R.W. Beck Sees Average Natural Gas Price for 2005 at $5.68/MMBtu

While revising its forecast for natural gas prices in 2005 upward, the R.W. Beck consulting firm still is keeping the target well under $6 at the Henry Hub despite average 2004 prices of $6.13/MMBtu, 30 cents above its forecast. The group moved its annual estimate for 2005 from $5.49 to $5.68/MMBtu.

R.W. Beck analyst Catherine Elder cited the extreme volatility and higher prices of the fourth quarter 2004 for boosting the year's average. Fourth quarter 2004 natural gas prices were "much more volatile than the rest of the year."

The extremely volatile prices witnessed in the latter part of 2004 were driven by several factors, including market over-reaction to the erroneous storage report released by EIA on Nov. 24. "Every time the market began to accept the reality of excess gas and prices began to fall, some other event intervened to push them back up," Elder says. R.W. Beck continues to expect lower prices later in the year and in 2006.

Underlying market conditions have changed very little, Elder said, as "Gas production exceeds demand."

Elder, fuels practice leader for the firm based in Sacramento, CA, explains: "Even after adjusting for mild weather and some offshore wells remaining shut in due to Hurricane Ivan, current storage data shows gas supply is running slightly higher than demand. However, cold temperatures during February bidweek will be enough of an excuse to keep prices higher than the supply/demand balance would otherwise dictate."

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