Moody’s Investors Service on Thursday sliced its North American natural gas price assumptions through 2013 and said with “no relief in sight for overproduction and storage,” it now assumes that gas delivered at the Henry Hub this year will sell for an average of $2.75/MMBtu.

“The new $2.75 price assumption for 2012 represents such a significant drop that it falls beneath Moody’s previous stress-case assumption of $3.00/MMBtu,” analysts said. The price assumptions signify “a secular shift in the ratings agency’s expectations about natural gas prices well into the future.”

Price assumptions “reflect baseline approximations — not forecasts — that the rating’s agency uses to evaluate risk when analyzing credit conditions within the oil and natural gas industry, Moody’s said.

The price assumption of $2.75 is 75 cents lower than Moody’s previous assumption, which is based on expectations for ongoing excess gas supply “caused by brisk shale production, aggravated by unusually mild winter weather that has resulted in high inventory levels in underground gas storage facilities.”

Gas prices in 2013 were set at $3.25/MMBtu, with a $3.50 price thereafter. Moody’s reduced its stress-case price to $2.00/MMBtu.

“The steep reduction in Moody’s natural gas price assumptions reflect a significant shift now under way in the natural gas market,” said analysts. “Weak spot prices this winter suggest that exploration and production companies heavily tilted toward natural gas face significantly lower profit margins compared to recent years. Still, some of the companies highly exposed to natural gas production — though not all — have set up effective hedges to protect themselves against low prices.”

Reduced price assumptions “stem primarily from an overabundance of North American natural gas. The glut has expanded as companies rush to develop unconventional resources — particularly shale, often through partnerships with large integrated and national oil companies that reduce the selling companies’ production costs. Moody’s expects shale development to continue at a brisk pace for the foreseeable future.”

Usually, said Moody’s analysts, gas prices significantly strengthen “once cold winter weather hits the heavily populated U.S. Northeast and Midwest regions” but mild winter weather has reduced gas demand, “both from spot market sales and from underground storage.

“In fact, out of North America’s total storage capacity of about 4 Tcf of natural gas, roughly 3.2 Tcf remained in storage as of mid-January. These levels indicate inventories running about 20% above the most recent five-year average.”

The credit ratings agency reiterated its price assumptions for crude oil and still assumes prices of $90/bbl for West Texas Intermediate (WTI) crude in 2012, $85/bbl in 2013 and $80/bbl thereafter. For Brent crude, Moody’s assumed a price of $95/bbl in 2012, $90/bbl in 2013 and $80 thereafter. A $60/bbl stress-case price was used for both WTI and Brent.

©Copyright 2012Intelligence 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.