The unexpected increase in oil prices in the second quarter has boosted the third quarter natural gas forecast by management consultant R.W. Beck. Last Tuesday, Beck revised upward its prediction of the annual average price at Henry Hub by 50 cents/MMBtu to $5.86.

Catherine Elder, leader of Beck’s Natural Gas and Fuels Practice in Sacramento, CA, said the 10% variance between actual prices and the previous forecast is “almost entirely” because of world events driving oil prices up.

“All market drivers are behaving as we expected, except the oil price of $40/bbl,” Elder said. “Natural gas injections, demand and production are right where we projected they would be.” The high oil prices have kept an “already ‘tight’ natural gas market in overdrive.” September crude oil futures prices reached a new all time high of $44.24/bbl on Nymex on Tuesday.

Gas storage injections, after adjusting for weather, are slightly ahead of schedule, which suggests that production is beginning to grow larger than demand even though it appears that record-high well completions still are needed to match production with demand for natural gas, the Beck report noted. “We continue to expect prices to fall as new supply comes online, later this year and into [the] next.”

Longer term, Beck said it continues to believe that gas prices will drop over the next several years before rising to the approximately $4.30/MMBtu level. “This view assumes that very high numbers of new wells are needed, along with the equivalent of one new liquefied natural gas terminal every other year, to meet projected demand.”

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