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PaineWebber Charts Price Peaks

PaineWebber Charts Price Peaks

The "unbalanced state" of the natural gas market with demand exceeding supply has caused PaineWebber analyst Ronald Barone to raise his average gas price projections by 15 cents for this year and 10 cents next year over previous predictions, and warn of possible severe price spikes throughout the balance of this year.

In his regular research report, NatGas Insight, Barone raised the estimated 12-region composite spot price to $2.85/MMBtu from $2.50 or the equivalent of $3.00/MMBtu at the Henry Hub. For 2001 he estimates the 12-region composite will be $2.60/MMBtu ($2.75 at HH), up from the previously projected $2.50.

Based on this Barone expects stock prices for natural gas companies to continue to rise. The PaineWebber analyst raised earnings estimates to levels ahead of consensus for El Paso Energy, Coastal, Questar, Energen, Equitable and National Fuel Gas. He also is bullish on Dynegy, Enron and Williams.

The increased estimates are based on predictions of a hot summer and increasing demand for gas-fired peak generation, which in turn will cripple the summer storage fill. Barone estimates that to reach the targeted 3,000 Bcf storage level by Nov. 1 the injection rate must be about 74 Bcf a week. Given the current supply situation and the facts that last year's fill rate was 60 Bcf/week and the five-year average was 69 Bcf/week, the 74 Bcf is "unattainable."

Last week's natural gas price increase, following on the heat-driven demand in the East, was just the warm-up for "gas price spikes heading toward $4.00/MMBtu" this summer. NYMEX futures prices for the summer months have recently registered $3.35 to $3.39.

Ellen Beswick

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