Given the bearish forces in the natural gas market, Energy Security Analysis Inc. (ESAI) predicts that gas prices, which are hovering at about $2.40/Mcf for the February 2002 futures contract, will continue on a downward trajectory for the next six months, falling 30 to 50 cents more.

Bulging gas inventories, a warmer-than-normal start to winter and depressed industrial demand make it improbable that a bullish force would rescue gas prices from this fall, ESAI said, but it noted that there may be factors that could certainly accelerate it. “If a move to dump storage begins earlier than February, the downturn could occur more rapidly than we have predicted,” said senior ESAI analyst Mary Menino.

Although late February is the traditional time for “leaning” inventories, the Boston, MA-based energy research firm expects the heavy draws to occur early in the month in light of this year’s buildup. “Once the heavy draws begin, there tends to be a rush for the door,” Menino said. “No one wants to be caught with low-valued stocks at the end of the season.” Contract clauses which require gas owners to withdraw their gas by a certain end-of-season date will only reinforce the stampede, ESAI believes.

It cautioned the gas industry not to pin its hopes on new gas-fired generating plants that are under construction. “Little of the new capacity is expected to come online before June, so the gas consumed by these plants will not be a significant factor in the first two quarters,” ESAI noted. Even then, it said it expects to see “delays and…cancellations of capacity projected for the third and fourth quarters as a result of slow growth in electrical demand.”

Arlington, VA-based Energy and Environmental Analysis Inc.’s (EEA) price forecast for the remainder of the winter was similarly bleak, predicting that a warmer-than-normal winter (which has been the case so far) would yield average prices below $2/MMBtu. A cold winter, on the other hand, could push prices to $4.25/MMBtu, it noted.

It doesn’t believe that prices will get much better next summer. The EEA projects that the monthly average of Henry Hub prices during the June-to-August period will likely range from $2 to $2.75. “Prices will struggle to rise above $2.75/MMBtu due to the relatively large storage inventory throughout this year,” the energy consulting firm said in its “Monthly Gas Update” for January.

“Despite continued declines in drilling activity, along with some producer shut-ins in response to low natural gas prices, and a modest return of some energy-intensive industrial demand, we expect that the U.S. natural gas market will continue to remain in a ‘soft’ supply-demand balance, at least in the near-term” due largely to the surplus inventory levels, the EEA said. “Little pressure on storage inventory…over the past two months made available an additional 1 Tcf of gas in storage for withdrawals for the remainder of this heating season over the same time last year.”

EEA said it expects U.S. gas productive capacity to satisfy nearly 56 Bcf/d or 68% of total demand for the remainder of this storage withdrawal season. Canadian and liquefied natural gas (LNG) imports will meet another 10.8 Bcf/d, or 13% of demand, for the rest of the season, it noted.

Assuming the remainder of the winter weather is normal, the EEA anticipates total winter storage withdrawals of about 1.85 Tcf, or about 0.25 Tcf below last year’s withdrawal level of 2.1 Tcf. It sees daily withdrawals averaging 16.2 Bcf/d during the January-through-March period, compared to 11.7 Bcf/d a year ago. In the end, EEA expects inventory levels to be at 1.3 Tcf in late March, exceeding last year’s levels by more than 500 Bcf. The high gas stocks “will continue to exert substantial downward press on gas prices.”

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