Credit Suisse on Monday cut its U.S. natural gas 2010 price forecast by 35 cents to $4.75/Mcf from $5.10 to reflect the recent gains in onshore drilling, which could lead to a year/year (y/y) increase in domestic output.

“However, there is a limit to how far gas prices will fall,” said analyst Teri Viswanath. “Current low prices should not only stimulate more demand (mostly in the form of incremental fuel switching) but should also limit LNG [liquefied natural gas] imports.” Prices “are unlikely to test 2009 lows (sub-$3 levels).”

The fundamentals are similar to 2009, but “there are just enough distinct differences to discourage the market from retesting last year’s contract lows,” the analyst wrote. “However, this is not to say that in this period of recovery, the industry has made sufficient strides in working off a significant amount of oversupply.”

Given the expansion in U.S. storage, “we predict that supplies will fall far short of hitting physical system limits,” wrote Viswanath. “Although our storage forecast suggests that a y/y deficit will develop next quarter (an event that should be viewed as constructive for U.S. gas prices), we think that the market will remain satisfied that ample supplies exist to rebuild storage by the end of the season.”

The most “notable” change to the Credit Suisse supply/demand forecast “is that we have significantly raised our electric power demand estimates.” Power demand is assumed to have risen in 1Q2010 because of heating requirements and should continue to improve through the rest of this year, which would lead to a plus-0.5 Bcf/d increase to total demand in 2010, Viswanath noted.

There also should be a build of 2.15 Tcf of inventories this summer, which would push working gas in storage “to a respectable 3.82 Tcf” by the end of October. The end-of-season storage may “rival last year’s refill,” but given new storage coming online this year, “we predict that supplies will fall far short of hitting physical system limits.”

The Credit Suisse outlook for gas prices follows price forecast reductions by many of the energy analysts, including two last week. Barclays Capital said bearish prices could continue into 2011 (see Daily GPI, April 1), and Goldman Sachs said gas prices may be “rangebound” into next year (see Daily GPI, March 31).

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