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Forecasting higher storage withdrawals this winter than last and less available liquefied natural gas (LNG), analyst Stephen Smith predicts that 2008 Henry Hub prices will exceed last year’s by more than $1/MMBtu. The caveat is that the rest of the winter does not turn out to be much warmer than normal.
In its Monthly Energy Outlook issued Jan. 30, Stephen Smith & Associates estimates a 2008 average of $8.05/MMBtu, compared to the estimated 2007 average of $6.86. The 2008 average breaks down to $7.65 in the first quarter, $7.70 in 2Q, $8.15 in 3Q and $8.65 in 4Q.
The analyst estimates that the United States will end the winter April 4 with a surplus of 530 Bcf, or 170 Bcf below last year’s surplus. And while deliveries of LNG to U.S. ports will pick up this spring and summer as they did last year, Smith does not expect there will be as much LNG available since last year’s availability was based on an unusually warm European winter. The current spread between Henry Hub and United Kingdom futures prices points to lower U.S. imports.
Smith also sees a supply-side linkage with crude oil prices, which are expected to be about $30/bbl higher at $88/bbl for WTI in 1Q08 than they were a year ago. The current $3.50/MMBtu discount on gas at the Henry Hub compared to 1% sulfur resid in New York Harbor can be expected to lessen as gas in storage drops.
Lower Canadian net imports, perhaps by as much as 7% will be offset somewhat by a U.S. production gain of 1.0-1.5% gain in domestic production, Smith said.
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