Credit Suisse Friday cut its U.S. natural gas price forecast for 2009 to $3.92/Mcf from $4.00, and sliced the 2010 estimate to $4.642 from $5.140. Weighing on the 2010 prices are expected increases in LNG imports and the start-up of 15 new coal-fired plants.

“Given the dramatic reduction in U.S. natural gas drilling, it is perhaps not too surprising that our forecast for domestic production calls for a sharp decline next year,” analyst Teri Viswanath said in a note to clients. “What is surprising is that we believe that this significant drop in domestic production will have very little impact on natural gas prices.”

Higher worldwide liquefaction capacity, combined with weaker global demand, will ensure stable U.S. supplies as rising liquefied natural gas (LNG) imports offset declining domestic production, said Viswanath.

“This is the first time we have expressed our views on 2010 balances and the unsettled feeling that we have could be likened to driving at night without headlights…While the passing landscape might look familiar, the uneasiness over hitting bumps in the road has exponentially increased.”

In a review of the forward curve, “it seems obvious to us that the market expects supply/demand balances to tighten significantly during the fourth quarter of this year,” said the analyst. “While we think there is a chance that supplies might be tighter than we’ve currently forecasted for 2010, we believe the supply overhang will pressure prices lower for the balance of 2009.

“Generally, we believe that the least risky strategy for investors at this junction is to consider selling the balance of the 2009 New York Mercantile Exchange strip and to wait for the possibility of a move higher to sell the 2010 strip.”

The Credit Suisse forecast is based on the expectation that if all goes according to plan, North American gas output will be “heavily supplemented” by LNG imports. The estimate is for 2009 to round out with 1.5 Bcf/d of LNG imports and that figure to double to 3 Bcf/d in 2010. That prediction was accompanied, however, by a warning of the “real possibility that these imports will not emerge in time or in equal volumes to offset declining domestic production. This possibility poses a significant risk to our supply/demand projections and price forecast for 2010.

The second assumption in the Credit Suisse projection is based on the “somewhat surprising development” of the start-up of new coal-fired power plants.

Capacity from coal plant additions going online in 2009-10 will top 10,000 MW, with one-third of the baseload power, or more than 3,000 MW, showing up in Texas, Viswanath explains.While the great bulk of the 150 coal plant projects that were proposed between 2000 and 2006 were cancelled. Some were not. And it is these projects that will dampen natural gas demand.

Industrial demand is predicted to continue to recover in 2010, but Viswanath said the recovery will be “significantly overshadowed” by losses in electric power demand. “In our view the start-up of a significant number of new coal-fired power plants will displace gas units in the dispatch stack, resulting in lower gas demand.”

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