Natural gas bulls continue to hear no good news from analysts, who have begun to lower their price expectations for 2012.

Both the American Gas Association and the Natural Gas Supply Association have said in recent days that gas prices for the 2011-2012 winter season are expected to be similar to those last winter (see Daily GPI, Oct. 13; Oct. 5). However, there’s less optimism for flat prices among analysts.

Raymond James & Associates Inc. analysts last Monday cut their price forecast to $4.00/Mcf from $4.25 “with bias to the downside” (see Daily GPI, Oct. 11). As to the natural gas outlook in the near term, they suggested, “Abandon all hope, ye who enter here.”

FBR Capital Markets also reduced its outlook, albeit not as much. Analysts on Friday cut their commodity price assumptions to reflect a continued slower gross domestic product growth outlook and higher than previously forecasted Marcellus Shale production.

“We are lowering our 2011 and 2012 natural gas forecast to $4.28/Mcf and $4.50/Mcf, from $4.38/Mcf and $5.00/Mcf,” said FBR’s Rehan Rashid and Saurabh Lele. “Similarly, we are maintaining our 2011 crude oil price at $92/bbl while reducing our assumption for 2012 forward to $80, from $85.

“We note that current consensus estimates assume average oil and gas prices for 2011 and 2012 of $92.50/bbl/$4.10/Mcf and $85/bbl/$4.10/Mcf, respectively.” The base case estimates assume there is no reduction in drilling activity levels or oilfield service costs, which would reflect long-term prices of $4.00/Mcf for gas and $75/bbl for oil.

However, the FBR duo reiterated its “overweight” rating on the exploration and production sector.

“We believe that outperformance will be driven by increasing recognition by the marketplace of the magnitude of remaining reserve growth (or real asset growth) potential from the industry from the liquid and natural gas shales.”

The analysts said domestic conventional gas output since 1950 has totaled about 1,000 Tcf while conventional liquids production from the Lower 48 states since the beginning of last century has totaled about 160 billion bbl. The industry should be able to recover “similar amounts of both oil and gas from the shales,” they said. “Therefore, we remain bullish on the sector and believe that the reserve growth–based ‘real’ energy super-cycle has just begun and should drive equity outperformance, compared to underlying commodities.”

Meanwhile, Deutsche Bank’s Adam Sieminski on Friday said forecasts for a cold winter may not be enough to save faltering gas prices. Analysts forecasting low gas prices in 2012 “say it is improbable that the cold winter and hot summer that supported gas prices in 2011 will be repeated. This may not prove to be as simple a conclusion as it appears to be.”

Because of the “relatively good market visibility on daily production” the driver of recent large gas storage builds reported to the Energy Information Administration “probably is on the demand side (industrial or power generation demand),” Sieminski said.

“Storage is now forecast to reach a peak of 3,775 Bcf in mid-November, followed by an April bottom at 2,000 Bcf-plus.” The bank’s forecast “for an abnormally cold December, January, February may be the only hope left for rescuing the gas price from its current doldrums.”

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