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Raymond James Sends Chills Up Gas Buyers' Spines

Raymond James Sends Chills Up Gas Buyers' Spines

Raymond James and Associates gave gas buyers a Halloween shriek last week that could be producing chills all the way through next April, perhaps even all of next year. The firm released a chilly forecast of double digit gas prices this winter and said it expects prices to average $4.50/MMBtu in 2001.

"Regardless of a potentially warm winter, it is highly likely that the United States will experience regional shortfalls in gas supply," Raymond James said in its latest energy report. "In other words, gas storage should test all-time low levels this winter regardless of weather.

"The situation should get worse, not better, next year. If we end the winter at all-time low storage levels and we cannot inject more gas next summer than we did this summer, then we should enter next winter with dangerously low levels of natural gas," Raymond James added.

"We believe that the United States will see gas demand increase by about 9 Bcf/d (or 15%) by the end of 2002 as new gas fired electric generation plants come on line. Unfortunately, even if every drilling rig is working, U.S. gas supply is likely to increase by less than 4 Bcf/d by the end of 2002. This means that gas prices must rise sufficiently to crimp over 5 Bcf/d of demand out of the gas supply/demand equation by 2002. At $5/Mcf, only about 1.5 Bcf/d of demand has been reduced so far. That means that gas prices must go higher over the next several years."

However, Raymond James' bullish predictions are a far cry above the crowd on Wall Street. Plenty of other analysts have upped their forecasts recently to hair-raising levels. The First Call consensus for 2001 now is up to $3.85/MMBtu. But that's still 65 cents less than the Raymond James's prediction.

Not everyone wants to scare the daylights out of buyers, however. Deutsche Bank believes analysts and the futures market participants at Nymex "are getting bold and in our view maybe too bold."

"With the natural gas rig count approaching 850, it is hard to believe that there will not be a fairly substantial supply response in 2001," Deutsche Bank said in its Energy Wire. "Analysts at the U.S. Energy Information Administration are expecting dry gas production to rise to 18.94 Tcf (51.9 Bcf/d) in 2001, after being stuck at near 18.7 Tcf (51.2 Bcf/d) for several years. Our own estimate for 2001 looks for 19.1 Tcf (52.3 Bcf/d) and we have seen credible forecasts reaching as high as 19.7 Tcf (54 Bcf/d). In general we think the EIA is way too conservative and that our own number is more likely to be adjusted higher rather than lower. A gain in domestic production of 2 Bcf/d to 53.2 Bcf/d could be doable. Imports appear likely to be up 0.5 Bcf/d. If demand rises by 2.5%, that would account for about a 1.5 Bcf/d gain. All other things equal, this implies that storage can refill and suggests that prices are going to come under some downward pressure."

Rocco Canonica

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