How low can you go? Both government and private energy analysts in the business of making natural gas price forecasts haven’t quite determined how low natural gas prices will go in 2012 — but the consensus doesn’t indicate a bullish run.

Natural gas forward market prices are signaling a continuation of low natural gas prices through 2012, the Energy Information Administration (EIA) said in an analysis released Thursday.

Winter 2011-2012 forward prices were recently the lowest in more than 10 years, and of the eight trading points identified, only Transco Zone 6-NY (New York City) and PG&E Citygate (Northern California) showed 2012 forward monthly price ranges that include prices above $4/MMBtu, the agency said.

Forward prices at the Henry Hub, TCO-Appalachia, Houston Ship Channel, El Paso Permian, Northwest Pipeline Rockies and SoCal Citygate were below $4/MMBtu.

Natural gas spot prices remained low throughout 2011 relative to prior years, reaching a two-year low in November, the EIA said. The spot natural gas price at Transco Zone 6-NY is above 2012’s average monthly trading ranges due to recent weather-driven demand. Current spot gas prices are lower than the 2012 forward contract range at several natural gas trading points.

Henry Hub in Louisiana set the gas prices for much of the rest of the country, with the exception of spot and forward prices during colder weather in the Northeast (at Transco Zone 6-NY), the EIA said. Northeast spot and forward prices rise during colder months due to expectations regarding pipeline constraints in transporting gas to the Northeast during times of high natural gas demand.

Front-month futures trading isn’t helping any talks of a rebound either. On Dec. 30 the February futures contract closed below $3 for the first time in more than two years. The contract’s settlement at $2.989 marked the first close under $3 since the October 2009 contract settled at $2.960 back on Sept. 11, 2009.

Private energy analysts are having a tricky time setting a price floor for gas prices this year and beyond.

On Tuesday Raymond James & Associates Inc. once again cut its outlook for 2012 U.S. prices, this time by a quarter to $3.25/Mcf. To those awaiting a recovery in gas prices the analysts advised, “Don’t hold your breath.”

Just a month ago the Raymond James team forecast gas prices this year would average $3.50/Mcf (see NGI, Dec. 12, 2011). That prediction came two months after they said U.S. gas prices would average $4.00 this year, a prognostication that was 25 cents below one made in July (see NGI, Oct. 17, 2011; July 11, 2011).

The bearish sentiment is best summed up in a song from the 1970s that was recorded by Kenny Rogers, said the Raymond James team.

“An old Kenny Rogers song, full of wisdom, went something like this: ‘You got to know when to hold ’em and know when to fold ’em.’ Little did he know that this made perfect sense for life, poker and…natural gas,” said the analysts. “For over three years we have been pounding the table that there is simply too much gas supply in North America. If you’re waiting for a recovery in gas prices, don’t hold your breath.”

In “the very long run,” which is 2015 and beyond, demand eventually should “catch up” through a combination of:

“But in poker as in natural gas, you will have to be a patient player,” said the analysts. The bearish outlook is based on the continued growth in domestic gas supplies.

“We estimate that more than 4 Bcf/d of domestic supply growth in 2012 will further pressure prices due to the vast amount of associated gas from liquids-rich plays. For some perspective, U.S. production increased 4.5 Bcf/d in 2011, as a result of which the full-year average price declined 8% to $4.03/Mcf. This pushed the gas rig count lower, but production continues to ramp up.”

Because of high crude prices and technical advances, natural gas liquids pricing has reduced the breakeven price point for gas producers to, at least in some cases, below the $3/Mcf level, said the analysts. Activity in vertical and horizontal dry gas areas “should continue to fall” but a drop in the gas rig count likely will be offset by an increase in gas production from the liquids-rich plays.

Canadian gas imports are expected to decrease by 1.1 Bcf/d this year. In addition, coal-to-gas switching should total about 0.8 Bcf/d, the Raymond James team estimated. In 2011a total of 1.7 Bcf/d in generation was switched to gas away from coal, but “most of this has been the easier projects, and consequently, we do not expect anywhere near this same amount of switching in 2012.”

Low gas prices also “will incentivize manufacturers and chemical companies to use more gas, but amid a decidedly slow economic recovery, we believe that industrial demand should have only minimal near-term growth.”

The analysts’ 2013 gas price outlook “doesn’t look much prettier, as we project 3 Bcf/d of domestic supply growth, based on the aforementioned growth in liquids-rich shale plays.” Even with more coal-to-gas switching, fewer Canadian imports and increased industrial demand, “the bottom line is that supply/demand dynamics point toward yet another year of oversupply in 2013.”

There’s no reason that gas prices would average higher than the midpoint of what analysts envision to be the long-term price range of $3.00 to $5.00/Mcf, they said. Raymond James initiated a 2013 gas price forecast of $4.00/Mcf and “beyond 2013, we are lowering our long-term forecast from $5.00 to $4.50.”

Domestic gas demand still is being hurt by a slowdown in U.S. gross domestic production, industrial production and “uncommonly warm weather,” said Deutsche Bank’s Adam Sieminski. Deutsche on Friday reduced its gas price forecast by 75 cents to $3.50/Mcf for 2012 from a prior estimate just one month ago of $4.25 (see NGI, Dec. 5, 2011). Forecasts also were reduced for 2013-2015.

“We believe that the longer-term fundamental picture in U.S. natural gas favors firmer prices,” said Siemenski. “In the medium-term, we believe that U.S. gas is supported by coal competition at about $3.50-4.00/MMBtu. Proposed U.S. Environmental Protection Agency regulations on power plant emissions could raise this floor but EPA is struggling to get these rules implemented.

“Near-term, however, the gas markets face difficulty. Start-of-winter storage peaked at the relatively high level of 3,852 Bcf, with [supply/demand] balances pointing to an end-of-winter bottom near a record high 1,975 Bcf. This will tend to stifle rallies and encourage sell-offs.”

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