Energy analysts last week continued to pile on the bearish forecasts, and two more sliced their forecasts for 2010 natural gas prices on two recurring themes: an acceleration in gas-directed drilling activity year-to-date, and the anticipated revisions expected to be made beginning this month in Energy Information Administration (EIA) production data.

An “industry willingness to spend solidly beyond cash generation” led SunTrust Robinson Humphrey/the Gerdes Group (STRH) to drop its 2010 gas price forecast to $5.25/Mcf from $6.50. STRH’s long-term forecast was cut to $7.50 from $8.00.

“The dramatic acceleration in gas-directed drilling activity year-to-date implies the industry is likely to spend almost 30% in excess of unhedged cash generation this year, and is the primary reason for our 2010 downward gas price revision,” wrote STRH’s John Gerdes, Cameron Horwitz and Ryan Oatman.

STRH is forecasting the U.S. gas rig count to average around 930 rigs this year, with another 20% jump in well/rig productivity. The team previously had cut its 2009 gas output forecast by 1.5 Bcf/d in anticipation of a downward adjustment to EIA supply data.

“The revision better corroborates with our storage model [and] state production data and accounts for a percentage of the discrepancy in the EIA’s balancing item,” wrote Gerdes and his colleagues. “We believe U.S. onshore gas production should experience a 2 Bcf/d (3%) peak-to-trough decline.”

Meanwhile, U.S. liquefied natural gas (LNG) imports could reach 2 Bcf/d this year from 1.2 Bcf/d in 2009 “and almost double” to 3.7 Bcf/d in 2011 because of additional LNG global supplies, said Gerdes and his team.

Raymond James & Associates Inc. energy analysts blamed the inability of U.S. gas supply to “roll over” and cut its 2010 price forecast for the second time since January.

J. Marshall Adkins, Pavel Molchanov and John Fitzgerald said “it is clear to us that the North American natural gas down cycle will be more protracted than just about anyone — including ourselves — would have predicted as little as three to six months ago. This is primarily a function of stubbornly high domestic gas supply, and secondarily the prospect of increased LNG imports later this summer.”

In early January Raymond James cut its 2010 U.S. gas price outlook to $5.00/Mcf from $5.50 (see NGI, Jan. 11). But analysts last week said “it’s already time to take the axe to our (previously bearish) gas forecast year again. Although our below-consensus gas call has continued to be directionally correct, we believe our U.S. gas price deck is still too high in the face of 1) U.S. gas supply that appears to be increasing much faster than even we thought, and 2) U.S. LNG imports, which have also been modestly higher than we thought.”

Raymond James’ revised outlook now is $4.25/Mcf, down 75 cents from the January forecast. The 2011 gas forecast “is coming down more modestly, from $5.00/Mcf to $4.75/Mcf.”

Domestic gas storage could again test its capacity this summer, “which should cause 2010 summer gas prices to roughly mirror 2009 summer prices,” wrote the Raymond James team. “Also, gas price upside appears limited given that several variables are price-sensitive and are likely to keep a ceiling on natural gas prices this summer should prices rise.”

The revised forecast “takes into account the fact that EIA-914 data will likely be revised (modestly) lower later this month. Despite the likelihood of a shift of the entire U.S. gas production chart modestly lower, the year/year and sequential trends should remain the same.

“Since we are basing our U.S. gas supply trends on recent gas storage data, any downward revisions in 914 data don’t change the fact that U.S. gas production is trending slightly up since September,” said Adkins and his colleagues. “All in, we expect production to continue growing sequentially, albeit at a more accelerated rate as the effects of the higher rig count begin to affect production (three-month lag between a rig returning to work and production from that rig).”

If gas prices were to move up toward $6.00/Mcf this year, “it would encourage more drilling, more LNG imports and more gas-to-coal fuel switching,” noted the Raymond James analysts. “Thus, we see little sustained upside potential for natural gas prices above $5.00/Mcf and are calling for $3.50/Mcf gas this summer.”

Credit Suisse analyst Teri Viswanath was more succinct.

“The bottom line is that working gas in storage is filling at a faster clip than last year and should keep a lid on prices.”

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