Although gas futures prices could take a short-term dip,possibly below $2.65, followed by a small rebound, by late May,Susannah Hardesty, president of Energy Research and Trading,expects prices to be solidly above $3, maybe as high as $3.30. Andshe’s not alone. Given the significant hype about the increase ingas-fired generation and the surge in peak summer power needs,Cynthia Kase of Kase and Company said this market could soar tounexpected heights.
Speaking yesterday at GasMart/Power 2000 in Denver, Hardestysaid she’s looking for the near-month contract to make a downsidecorrection to between $2.65 and $2.30. “But I think given thecurrent market climate that’s just way too much to expect, and weare looking for prices to drop down to the top half of that between$2.65 and $2.475. We are also looking for a second peak, peak twoof the spring high, to occur between April 22 and May 12, again atabout the same level [of the first peak]. The final peak of thespring high, I think, is going to be the one that is going to takeus away. This is due from May 20 to June 23 and I’m looking forfirst futures prices to go anywhere from $3.05 or $3.30.
“The reason for that is the projection for weather in June. Allthe weather forecasters are looking for warmer weather this summer,but the major bias is that June could be, relatively speaking, ourhottest month all summer so that should send prices soaring duringthe month of June.”
Although a lot of the demand from new gas-fired generationalready is reflected in the price, Kase said, “on a panicked buyingspree, the 12-month strip could go to $3.30.
“I don’t see much potential above that. The front of the market[the near-month contract] could go to anything. We always say thatprices could rise theoretically to infinity. You could see a shotdriving prices above their old historical high of $4.80 to $5.75even higher. One point to make though is that every time we’ve madenew highs in the 12-month strip it’s been by about 15 cents at atime so if we do make a new high of $3.30 it’s going to take sometime to get up there. We went from $2.75 to $2.89 and then from$2.89 to $3, about an 11-cent increase. I think we’re going to seethe next one gradually.”
Kase noted the hype surrounding gas-fired power generationdemand has been fueling this bull market for about 18 months. “Itwas one of the reasons we had a bull market last summer becauseeveryone has been nervous about that. Essentially it’s alreadyreflected in the price and the 12-month strip has been up to $3. Inthe earlier 1995-97 bull market, the highs were in the $2.70s. Ithit $2.89 last summer and hit $3 recently,” she added.
After the summer spike this year, however, prices could cometumbling down, both Kase and Hardesty agreed. “In July we’relooking for the first drop of the summer low between $2.50 and$2.40 because we’ll no longer be as concerned about cooling demandfor the summer,” said Hardesty. “The La Nina is expected to end bymid-summer, so I think there’s a good chance that we’ll have anormal hurricane season in which case we could see a second bottomfor the summer low.”
Hardesty said the increase in gas-fired power generation willprevent her projected summer low this year from reaching the $2.10average lows of past. “I’m looking for a low around $2.40. Butsomething that could take prices lower is if we have a normalhurricane season this year instead of the abnormally active seasonsof the past three years. Late August or early in September we couldsee prices declining even further.”
Kase said her projection on the late summer drop is $2.44.”There’s another reason we could see lower prices, however. Rightnow there’s a certain amount of hysteria in the market. People areanticipating all this demand. They’re saying, ‘Oh look at all thisgas-fired generation and there’s no gas; boy we have to buy moregas.’ And so if they buy too much now and push it up further, up to$3.30 right away and a lot of that is just on fear, we may see thattoo big a swing up is going to cause too big a swing down.”
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