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Natural Gas Price Forecasts Wobbling

Wunderlich Securities is holding steady on its forecast for U.S. natural gas prices, but other analysts aren't quite as optimistic about what's ahead through the end of this year and into 2014.

Wunderlich's Irene Haas in a note Wednesday said the firm's domestic price forecast remains unchanged, in part because Henry Hub prices in 3Q2013 averaged $3.56/Mcf, in line with a projection of $3.50.

"U.S. aggregate natural gas production looks relatively flat, which is helpful, and total U.S. working gas in storage is at the five-year average (2008-2012)," she said. "All these trends are very encouraging. We are keeping our 2013 and 2014 forecast mostly unchanged at $3.71/Mcf and $3.70/Mcf, respectively."

However, the gas price forecast at Wells Fargo has been cut to $3.65/MMBtu from $3.80 because of lower than expected prices in the third quarter. Analysts had anticipated prices would be on average $3.75, higher than what materialized.

"We are also lowering our 4Q2013 estimate to $3.60 from $4.00," said the Wells Fargo team. The full-year 2014 estimate for natural gas now is set at $3.98, well below a previous forecast of $4.30.

Earlier this month Tudor, Pickering, Holt & Co. (TPH) analysts offered a base case for a near-term natural gas supply/demand model, which pointed to 3.9 Tcf storage by November 2014. The 2014 strip price of $3.80/Mcf reflected this reality, said analysts Dave Pursell and Brian Blossman.

"We are not chasing gas higher on a weather spike in the coming months unless the supply and demand dynamic improve...soon!," the duo said. Their medium-term price range of $3.50-4.50/Mcf was narrowed for 2014 to $3.50-4.00/Mcf.

TPH's base-case assumptions for revising down the outlook for 2014 gas prices are expectations for flat gas production, only rising about 0.6 Bcf/d, or 1%, versus fiscal year 2013. Industrial and power demand is forecast to grow 3% year/year in 2014, or 1.2 Bcf/d. And residential and commercial gas demand would be down slightly on a normal winter assumption versus 2013.

Of course, there are variances to the base case, Blossman and Pursell said. An upside to the base case could see gas production fall by 0.5 Bcf/d versus 3Q2013 levels, with industrial/power demand each growing 5% in 2014, or about 2.1 Bcf/d, "true upside sensitivity," they said. On the other side of the coin, November 2014 storage could be 4.4 Tcf and gas production could continue to climb to 1 Bcf/d more than current supply, about 2.4% more in 2014 than this year. In addition, industrial/power demand each could be sluggish.

The "big picture," however, is that gas supplies still are "creeping up," said Pursell and his colleague. "Net imports are drifting lower with help from both reduced imports and increasing exports."

U.S. natural gas supply and demand should be robust for the next decade or longer, but there are different ideas on what that may mean for prices and volatility, experts said earlier this month (see Daily GPI, Oct. 11). America's Natural Gas Alliance's Paul Smith, senior director for infrastructure, said the onslaught of robust onshore shale production virtually has made price volatility "a thing of the past." Shale's importance "is not just in contributing to long-term affordability for gas, it is equally important that it has meant the elimination of volatility for the most part."

A Goldman Sachs economist said recently she even sees gas demand eventually growing at $6.00/MMBtu (see Daily GPI, Oct. 14).

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