Forecasting a decline in production setting in during 2013, Credit Suisse's head of energy commodities research believes North American natural gas prices are due for a rebound from 2012 levels.
During a conference call last Thursday morning to discuss the energy complex entering 2013, Jan Stuart, the head of energy commodities research at Credit Suisse, said Henry Hub natural gas prices will average $3.70/MMBtu in 2013, up from about $2.80/MMBtu in 2012.
Stuart's price prediction takes into account an expected reduction in natural gas production during 2013 as producers seek to economize their efforts. "We think there will be a decline in production at some point that will allow a normalizing of inventory," he said.
The decline in production would be a departure from the recent trend. As of September, U.S. production was more than 5% higher than in the first nine months of 2011, according to the U.S. Energy Information Administration. In some unconventional plays, such as the Mississippian Lime, production is shifting away from gas and toward oil, but overall, natural gas production continues to rise.
"We're looking for it [the anticipated decline in production], but haven't yet found it," Stuart said.
Those looking for a meaningful rebound in domestic natural gas prices will have to wait a bit. In the short term, Stuart expects U.S. natural gas prices to show weakness due to mild winter weather.
During the call he said Credit Suisse is "bullish" on liquefied natural gas (LNG) because of continued high demand in Japan following the Fukushima nuclear power plant disaster. The incident forced Japan to look away from nuclear to find alternative fuel sources to generate electricity. The Japanese government wants to phase out nuclear power by the late 2030s.
In October Japan imported almost 11 Bcf/d of LNG, 3 Bcf/d more than it did in October 2008, according to Credit Suisse. The price Japan paid for its LNG imports rose from about $11/MMBtu in 2010 to about $17/MMBtu in 2012. Japan's gas supply contracts historically have been linked to oil prices, a method the country is actively looking to change.
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