While cold weather of late has helped to turn one analyst a little more bullish on U.S. gas prices for this year, bearish factors — including still-robust supply following a plummeting rig count — have other analysts tweaking their 2010 price forecast downward.
Stephen Smith of Stephen Smith Energy Associates has raised his 2010 Henry Hub bidweek average gas price estimate to $5.60/MMBtu from $5.10/MMBtu and his 2011 estimate to $6.65/MMBtu from $6.50/MMBtu. However, analysts at Raymond James & Associates Inc. just cut their 2010 estimate to $5/Mcf from $5.50/Mcf and set their initial 2011 forecast at $5/Mcf as well.
“Thanks to improvements in well productivity…we think U.S. gas supply will only see a modest 2-3 Bcf/d (or 4-6%) year-over-year decline in 2010,” analysts at Raymond James wrote in a research note Monday. “…[T]he continued high-grading efforts by operators, the backlog of uncompleted/deferred gas wells and a rising gas rig count suggest that supply declines should stabilize or even reverse (i.e., turn more bearish) as we move through the year. So despite a healthy gas price start for 2010, caution remains the name of the game as substantial uncertainties still exist for U.S. gas supply…”
For Smith, cold blasts of arctic air and their winnowing effect on the gas storage surplus have been good news for bulls.
“This is a big deal,” he said of this winter’s cold temperatures in much of the country. “We’re reducing the [gas storage] surplus over a six-week period ending January the 15th. If the short-term forecasts hold up…we’re dropping the surplus by over 300 Bcf in a six-week period. The good news for the markets if you’re a seller of gas is the weather, plus the prospect from the consensus of different forecasters that it looks like we’re probably going to have…a cold first quarter. That’s the positive news.”
Also lending gas price support is a stronger outlook for oil prices, Smith said. “I had been thinking that the price of oil was not really justified and that we were probably stuck in a trading range that looked like $65 to $80, but based on the last few weeks I feel more comfortable adding $5 to that trading range because the worldwide glut of distillate is showing signs of correcting,” he said, noting that oil stocks are declining.
But like the Raymond James analysts, Smith is looking to only modest declines in gas production despite drilling curtailments. “It has to do with the much greater proportion of shale gas wells now being drilled, the substantial increase in the number of [hydraulic fractures] per shale well drilled and the resulting increase in front-end gas production per operating rig,” Smith wrote in his Monthly Energy Outlook for December.
He also told NGI that imports of liquefied natural gas (LNG) this year will put downward pressure on prices, but not nearly as much as the domestic production factor.
Raymond James analysts also include LNG in their bearish case.
“The three main assumptions that support our bearish (relative to consensus) $5/Mcf natural gas forecast for full-year 2010 are (1) core U.S. supply down only 1.5-2.5 Bcf/d; (2) an increase of 0.5 to 1.0 Bcf/d in LNG imports, which could very well prove conservative given the amount of liquefaction facilities (incremental LNG supply) that started up in the second half of 2009; and (3) a modest uptick in industrial gas demand offset by increased gas-to-coal fuel switching at gas prices above $5/Mcf.”
For the week ending Jan. 4, Tudor, Pickering, Holt & Co. Securities Inc. said gas sendout from U.S. LNG terminals averaged 1.98 Bcf/d.
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