PaineWebber has revised its composite spot forecast for naturalgas prices upwards by eight cents to $2.20/MMBtu for the remainderof the year. This compares to an industry consensus of $2.08/MMBtu.

The forecast assumes August through December composite spotprice averages of $2.54, $2.40, $2.45, $2.75 and $2.80/MMBtu,respectively. But the forecasted prices “could prove conservativeif there is material Gulf of Mexico hurricane activity,” wroteanalyst Ron J. Barone in a PaineWebber research note.

“By historical standards, we’re looking at very healthy [cash]gas prices going forward,” probably over the next 12-18 months, hetold Daily GPI. He cited the low level of domestic drillingactivity as the reason for the upward movement in gas prices. Baronsaid he didn’t see a reversal in this trend anytime soon.

“…[I]independent producers are too highly leveraged, andthey’ve got to pay down debt before they can re-accelerate thedrilling program.” This pick-up in drilling activity will beessential before “we start to see natural gas prices start to comedown dramatically.”

Barone warned that the rise in gas prices could be adouble-edged sword for the gas industry. “I think it is a goodthing, but too much of a good thing isn’t good for industry. Toomuch high prices, I think, could stop some growth,” causing gascustomers, especially power generators, to switch to other types offuels for new facilities.

As for futures prices, “I don’t think we’re going to keepfutures at $3.06. We’re not going to keep numbers like that in theshoulder months. Will they come back to $2 and some change? Yeah.Could I see $5 in certain days in January? Yeah.”

©Copyright 1999 Intelligence Press Inc. All rights reserved. Thepreceding news report may not be republished or redistributed, inwhole or in part, in any form, without prior written consent ofIntelligence Press, Inc.