While many gas market forecasters are betting gas prices will match the current Nymex strip for the rest of the year, which is higher than $5.70/MMBtu, consultants at Wood Mackenzie believe prices are poised to fall due to falling competitive fuel prices and resulting gas demand losses. The Wood Mackenzie consultants also are expecting a gas production recovery in the third quarter.

Wood Mackenzie predicts that natural gas prices will be US$1.25-1.50/MMBtu higher than residual fuel oil this summer, the highest ever summer natural gas premium to oil. The consultants expect this premium to drive significant demand responses from the power market.

“We don’t underestimate the size of the problem. Throughout late spring and early summer, storage must build back up to an acceptable minimum level. That means injecting an extra 2.5 Bcf/d of natural gas on top of last year’s injection demand, at a time when North American supply is tight at 74 Bcf/d,” said Jen Snyder, head of Wood Mackenzie’s North American gas research group.

“However downward pressure on price will come in Q3 as a post war oil [prices stabilize] in the mid-to-low US$20/barrel range and as generators use their flexibility to switch to residual or distillate fuel oil and away from burning natural gas.

“Our upstream experts also see indigenous North American gas production stabilising in the second half. Our global research also shows LNG import growth will add to the supply mix — although global constraints will keep imports well below regasification capacity.”

The consulting firm opened a North American Gas Insight Service for business last week. For more information contact the firm at (617) 273-8335 or email nagas@woodmac.com.

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