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

“Regardless of a potentially warm winter, it is highly likelythat the United States will experience regional shortfalls in gassupply,” Raymond James said in its latest energy report. “In otherwords, gas storage should test all-time low levels this winterregardless of weather.

“The situation should get worse, not better, next year. If weend the winter at all-time low storage levels and we cannot injectmore gas next summer than we did this summer, then we should enternext winter with dangerously low levels of natural gas,” RaymondJames added.

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

However, Raymond James’ bullish predictions are a far cry abovethe crowd on Wall Street. Plenty of other analysts have upped theirforecasts recently to hair-raising levels. The First Call consensusfor 2001 now is up to $3.85/MMBtu. But that’s still 65 cents lessthan the Raymond James’s prediction.

Not everyone wants to scare the daylights out of buyers,however. Deutsche Bank believes analysts and the futures marketparticipants at Nymex “are getting bold and in our view maybe toobold.”

“With the natural gas rig count approaching 850, it is hard tobelieve that there will not be a fairly substantial supply responsein 2001,” Deutsche Bank said in its Energy Wire. “Analysts at theU.S. Energy Information Administration are expecting dry gasproduction to rise to 18.94 Tcf (51.9 Bcf/d) in 2001, after beingstuck at near 18.7 Tcf (51.2 Bcf/d) for several years. Our ownestimate for 2001 looks for 19.1 Tcf (52.3 Bcf/d) and we have seencredible forecasts reaching as high as 19.7 Tcf (54 Bcf/d). Ingeneral we think the EIA is way too conservative and that our ownnumber is more likely to be adjusted higher rather than lower. Again in domestic production of 2 Bcf/d to 53.2 Bcf/d could bedoable. Imports appear likely to be up 0.5 Bcf/d. If demand risesby 2.5%, that would account for about a 1.5 Bcf/d gain. All otherthings equal, this implies that storage can refill and suggeststhat prices are going to come under some downward pressure.”

Rocco Canonica

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