NGI The Weekly Gas Market Report
Analysts are escalating their spot gas price forecasts, but it’snot the oft-cited storage fill that’s driving them.
Besides the weather, “there’s a lot of uncertainty aboutproduction capacity,” said Ron Denhardt, energy services vicepresident for WEFA Inc. “It’s tight, but no one knows how tight.”The Burlington, MA-based firm is predicting Henry Hub prices -November through March – will average $3.05/MMBtu. That’s based ona winter that is 2% to 3% warmer than normal. “Right now theforecasts for most of the country are for warmer-than-normaltemperatures. If it gets colder, prices could go extremely high.”
PaineWebber also has revised its composite spot forecast fornatural gas prices upwards by eight cents to $2.20/MMBtu for theremainder of the year. This is well above the industry’s consensusof $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.
“There’s a lot of gas in storage. That’s not the problem,”Denhardt said. The comparisons showing storage lower than last yearignore the fact that storage hit record levels last year. But whilestorage levels are closely tracked and measured, production isanother story.
“Our forecast is primarily based on the assumption thatproduction capacity is way down and continuing to decline. But it’shard to tell what’s actually happening.”
Denhardt pointed out the Energy Information Administrationshowed production capacity off in the first quarter of 1999 by 2%from year-ago figures. EIA’s second quarter report, however, showedproduction down just one-half percent from the second quarter 1998.”At the same time our calculations based on company quarterlyreports showed production down 4% from the prior year.” That’s abig difference to reconcile.
There are problems with both of those measurements, Denhardtsaid. EIA gets its data from the states and there can be glitchesin that process. The quarterly reports, however, are mostly fromlarger producers. “It could be smaller producers are doing better.We’re guessing production overall by the end of the year will bedown 4-6%, but it’s a big guessing game. There’s a question whethersmaller producers have the cash flow to increase drilling.”
The shoulder months could see some lower prices, Denhardt said,depending on hurricane activity. But the question going into thewinter is how far storage can go in filling in the productiondeficit.
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