Energy analysts with Raymond James & Associates Inc. on Tuesday once again cut their outlook for 2012 U.S. natural gas 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 Daily GPI, Dec. 6, 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 Daily GPI, Oct. 17, 2011; July 6, 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.”

©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.