Associates

Natural gas prices will remain depressed relative to crude oil through the summer, but as the gas storage surplus is worked off, Raymond James & Associates Inc. expects a gas price rebound to the traditional 6:1 oil-gas ratio heading into 2007.

Not to put too fine a point on it, but “the bears were again proven wrong” when it comes to exploration and development (E&D) spending, says Raymond James & Associates in its weekly research note. In fact, say the firm’s energy analysts, E&D spending for their selected universe of companies posted 41% growth over 2004.

Looking back on the winter that wasn’t in his Monthly Energy Outlook issued March 23, Stephen Smith of Stephen Smith Associates is projecting wholesale natural gas prices near $6-$7 for the second quarter, “and depending on summer heat and hurricanes, possibly longer.”

Given continued “freakishly” mild winter weather, gas prices are likely to dip to $7 by March, according to energy consultant Stephen Smith of Stephen Smith & Associates. Smith is forecasting a season ending gas storage level of 1,570 Bcf, compared to 10-year norms of about 890 Bcf, and a March 31 Henry Hub gas price of about $6.75-7.50.

Resource adequacy is the most pressing issue facing the power industry today, a top official with Cambridge Energy Research Associates (CERA) said last Wednesday. There is a trend toward the issuance of request for proposals (RFP) to meet this challenge, but solicitations for capacity with long-term and short-term contracts are not necessarily silver bullets, CERA found.

While Sabine Pipe Line continues to lift its force majeure on a few more Henry Hub interconnects each day, Cambridge Energy Research Associates’ (CERA) Kenneth Yeasting, director of Eastern North American Energy, wonders if too much emphasis has been placed on the Erath, LA, pipeline hub as the benchmark pricing point for North American natural gas market.

Following on the prescient forecast two months ago that natural gas prices could hit $10/Mcf by the end of the summer, Raymond James & Associates this week remained bullish on prices rising in the next few months, improving on favorable year-over-year weather comparisons and a shrinking surplus of stored gas.

With the weather expected to be hot through much of the summer, Stephen Smith Energy Associates projects that less natural gas will be going into storage than in past years, leaving little surplus gas to act as a buffer against hurricane-related problems and high gas prices.

Despite already pushing gas and oil price forecasts well past Wall Street consensus estimates, analysts at Raymond James & Associates once again raised their short-term predictions for crude oil and natural gas prices based largely on low OPEC productive capacity, maturing non-OPEC production areas and a much tighter link between oil and natural gas prices.