|
FirstEnergy believes gas could spike
Gary Park For Petroleum News
Far from entering the prolonged slump most analysts are predicting, the natural gas business could soon enjoy a price spike if storage levels fall at a record pace this winter and liquefied natural gas imports continue to slow, said Calgary-based FirstEnergy Capital.
While sticking to its warning that Canadian prices could drop below C$1 per thousand cubic feet later in September and nudge US$2 per million British thermal units in the United States, FirstEnergy is offering the most upbeat industry predictions.
Analyst Martin King said forecasters are “far too conservative in estimating U.S. cumulative gas storage withdrawals for the upcoming heating season.”
“Value factors such as falling supplies in the U.S. and Canada, improving demand, and slower LNG imports, contribute to our view for aggressive storage withdrawals,” setting the stage for a sharp price rebound in early 2010 which could exceed FirstEnergy’s current target of US$7 per million British thermal units.
The report noted that most storage forecasts call for U.S. levels to exit March 2010 at about 1.8 trillion cubic feet, pointing to a normal reduction of about 2 tcf.
But King said those are based on a belief that “slow industrial and commercial demand from a wounded U.S. economy and relatively slow declining domestic supply will keep storage withdrawals in check over the upcoming heating season.”
Scenarios for early price recovery King and FirstEnergy offered a number of theories that will spur an early price recovery.
They said Canadian supply losses will continue to grow to 1 billion cubic feet per day for 2009, double the previous estimate, meaning that Canadian storage will not remain full for long.
On LNG, First Energy believes U.S. imports will slide during 2010, while U.S. industrial demand could enter the first stages of a recovery by late 2009.
That recovery will “be better than the demand implosion that rocked the market” in the first half of 2009, FirstEnergy said.
King predicted that gas prices on the futures and physical markets will likely hit bottom in late September or early October, noting that forward pricing expectations are “reaching the point of maximum pessimism” as they hit seven-year lows.
“We expect that the last page of this sordid meltdown will be in a matter of days or weeks as producers are forced to shut-in production,” he said.
Peters & Co. disagrees Investment dealer Peters & Co. does not share the same near- to mid-term view as FirstEnergy, clinging to a “poor” outlook for winter prices that could result in 1.85 tcf of gas in storage entering the 2010 injection season as supply-and-demand balance is delayed until the second half of 2010.
But the firm said the North American situation could “swing sharply back in favor of higher natural gas prices in the second half of 2010 as we forecast that, even with flat year-over-year industrial and residential gas demand, U.S. gas storage will decrease to about 3.35 tcf for the beginning of the 2010-11 heating season.”
Until then, Peters & Co. is not counting on a material gain in gas prices to about US$5 per thousand cubic feet until a year from now, although that timeframe could be shortened if U.S. industrial demand returns.
| 