Despite the gas futures rally that pushed May prices to contracthighs of $3.087 last Thursday, Susannah Hardesty, president ofEnergy Research and Trading, still expects a higher spike nextmonth, possibly to $3.30 for the near-month contract, asnervousness over strong summer gas and power demand reaches thetrauma stage.

And she’s not alone. Given the significant hype about theincrease in gas-fired generation and the surge in peak summer powerneeds, Cynthia Kase of Kase and Company said this market could soarto unexpected heights.

Speaking last week at GasMart/Power 2000 in Denver, Hardestysaid she’s looking for the near-month contract to make a downsidecorrection to the $2.60s or $2.50s before the next spike, whichwill be the second peak of the spring high. “The final peak of thespring high, I think, is going to be the one that is going to takeus away. This is due from May 20 to June 23 and I’m looking forfirst futures prices to go anywhere from $3.05 or $3.30.

“The reason for that is the projection for weather in June. Allthe weather forecasters are looking for warmer weather this summer,but the major bias is that June could be, relatively speaking, ourhottest month all summer so that should send prices soaring duringthe month of June.”

Although a lot of the demand from new gas-fired generationalready is reflected in the price, Kase said, “on a panicked buyingspree, the 12-month strip could go to $3.30. I don’t see muchpotential above that. The front of the market [the near-monthcontract] could go to anything. We always say that prices couldrise theoretically to infinity. You could see a shot driving pricesabove their old historical high of $4.80 to $5.75 even higher.

“One point to make though is that every time we’ve made newhighs in the 12-month strip it’s been by about 15 cents at a timeso if we do make a new high of $3.30 it’s going to take some timeto get up there. We went from $2.75 to $2.89 and then from $2.89 to$3, about an 11-cent increase. I think we’re going to see the nextone gradually.”

Well, the 11-cent jump in two days last week to a new recordhigh of $3.116 for the 12-month strip was quite a bit faster thanwhat normally would be considered gradual.

Both Kase and Hardesty agreed, however, prices could cometumbling down as fast as they have shot up. “In July we’re lookingfor the first drop of the summer low between $2.50 and $2.40because we’ll no longer be as concerned about cooling demand forthe summer,” said Hardesty. “The La Nina is expected to end bymid-summer, so I think there’s a good chance that we’ll have anormal hurricane season in which case we could see a second bottomfor the summer low.”

Hardesty said the increase in gas-fired power generation willprevent her projected summer low this year from reaching the $2.10average lows of past. “I’m looking for a low around $2.40. Butsomething that could take prices lower is if we have a normalhurricane season this year instead of the abnormally active seasonsof the past three years. Late August or early in September we couldsee prices declining even further.”

Kase said her projection on the late summer drop is $2.44.”There’s another reason we could see lower prices, however. Rightnow there’s a certain amount of hysteria in the market. People areanticipating all this demand. They’re saying, ‘Oh look at all thisgas-fired generation and there’s no gas; boy we have to buy moregas.’ And so if they buy too much now and push it up further, up to$3.30 right away and a lot of that is just on fear, we may see thattoo big a swing up is going to cause too big a swing down.”

Rocco Canonica, Denver

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