Raymond James Boldly Predicts $10 Gas this Winter
Many industry analysts have been steadily raising their gas
price forecasts because of the year-long drilling slump and its
potential impact on gas deliverability next winter, but St.
Petersburg, FL-based Raymond James & Associates went out on a
limb this week predicting sharp price spikes above $10/Mcf at the
Henry Hub this winter and an average of $3/Mcf at the hub next
"Given that we think there is a significant potential for spot
natural gas shortages next winter (winter of 99/2000), we believe
there is substantial potential for U.S. natural gas prices to
temporarily move into the double-digit range," Raymond James energy
analyst J. Marshall Adkins said in a report released Monday.
"Perhaps more importantly, this kind of supply shock would likely
awaken the natural gas markets to the true underlying gas supply
and demand fundamentals. Such an awakening should drive average
2000 natural gas prices well above levels we have seen in the past.
We believe that once the U.S. gas markets receive their wake-up
call this winter, average gas prices above $3/Mcf in 2000 are very
Adkins notes that simply a return to normal temperatures next
winter will boost gas demand 8% compared to last winter. Meanwhile
a conservative prediction on gas supply this winter shows at least
a 2% drop, or about 1.2 Bcf/d. Some producers, such as Enron Oil
& Gas Chairman Forrest Hogland, are expecting much larger
declines of up to 3 Bcf/d.
With strong demand and short supply (even including a 5% rise in
imports from Canada), the existing storage surplus will be depleted
rapidly. "Our numbers suggest that we will exit the winter setting
all-time record lows for natural gas storage." Raymond James is
predicting storage will end the winter with 270 Bcf of working gas,
a historic low which would be difficult to reach.
There's a 70% probability storage will end the winter heating
season below 700 Bcf and "history suggests that ending storage
below 700 Bcf should result in $10/Mcf or higher gas prices," the
group's report stated.
"What if our base case is wrong" Raymond James asks, and winter
temperatures are 5% warmer than normal? Gas storage still would end
the winter below 700 Bcf. Given the incomprehensible possibility
that winter temperatures could be 5% colder than normal, Raymond
James said there would be a need to draw down storage to negative
141 Bcf of working gas by March 31. "In either case, we have a
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