A glimmer of hope has emerged in the natural gas and oil industry, but commodity price forecasts still are uncertain because a price recovery will depend on the success of global stimulus packages that use energy as a driver, the pace of economic recovery and the magnitude of North American gas reserves, energy analysts said in new reports.
For instance, the U.S. gas storage surplus has seen only a “very modest impact” despite a huge cut in the onshore rig count, said Stephen Smith Energy Associates in a note to clients Monday.
“The two weeks through mid-July may reduce the surplus by another 20 Bcf,” Smith analysts said. “But by mid-July there will be only six-seven weeks until Labor Day — not enough time for even a very hot second-half-of-summer to prevent near-capacity storage in the fall. Some combination of hurricane disruptions and price-driven producer shut-ins will be required to limit gas-in-storage to the available capacity. While lower U.S. production will begin to reduce the storage surplus in 2010, this decline is not happening quickly enough to avoid capacity problems this fall.”
In its projections the Smith team said the domestic gas surplus may peak in early summer “but [we] still expect downward price pressure from a ‘storage capacity crunch’ in the fall.” Assuming West Texas Intermediate crude prices of $60-75/bbl, a summer weekly peak of 2 Bcf/d of liquefied natural gas (LNG) imports and no substantial hurricane effects, Smith analysts are projecting a storage level of about 3,786 Bcf on Oct. 2, “which would represent a surplus of 938 Bcf versus 10-year storage norms,” compared with a 460 Bcf storage surplus a year earlier.
“In this environment, with no hurricanes imminent, we estimate a late September 2009 gas-to-resid spread in the range of minus $6/MMBtu to minus $5/MMBtu,” the Smith team said. Based on those assumptions, a “likely” October Henry Hub bidweek price would be $3.50-4.50/MMBtu.
Don’t look for a commodity price recovery before 2010, said Morgan Stanley analysts in a report Monday. Next year “will mark the beginning of the recovery” because major banks and governments will “maintain their current unprecedented level of economic stimulus,” said analysts. “This should provide the necessary stimulus to maintain the restocking phase of a new commodity cycle and eventually trigger an increase in self-sustaining demand growth.” Global industrial demand is rebounding, said the Morgan Stanley team, which suggests that 2009 will be the “trough of the Great Recession.”
Canadian-based AJM Petroleum Consultants is forecasting oil and gas prices to “steadily continue to recover with time horizon remaining the unknown…Until such time as there is an indication of a sustained U.S. recovery that would affect crude demand — and until decreased drilling brings about a production decline in natural gas — the current price increases may be setting us up for false hope — just as it was in June 2008 when speculation, rather than a sustainable supply/demand equation, drove prices.”
For Alberta drillers, “everything is setting up for a recovery…into 2010,” wrote the AJM analysts. “Canadian service costs have come down and the government of Alberta has responded to industry by providing drilling incentives. Proposed LNG export facilities at Kitimat, BC [see related story], and the Enbridge Northern Gateway Pipelines proposed crude oil pipeline from Edmonton to Kitimat, show that alternative markets for Canadian hydrocarbons are being reviewed. Both these projects would open crude oil and natural gas into the Asian markets and eliminate the United States as Western Canada’s sole marketing source.”
©Copyright 2009Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.
© 2020 Natural Gas Intelligence. All rights reserved.
ISSN © 1532-1231 | ISSN © 2577-9877 |