Industry analyst says gas prices to rise

Petroleum News

U.S. natural gas storage, despite a period of rapid build, appears to have reached a point where it is “neither expanding nor contracting,” industry analyst Steve Smith said Dec. 1. Therefore, Smith said he raised his Henry Hub price target over the coming months from $3.50-$4.00 per thousand cubic feet to $3.75-$4.50 per thousand cubic feet.

Smith said in a report that for the first time in seven months, a rough equilibrium has been struck between storage build and drawdown.

“This near-zero ... level provides some evidence that the sharply lower gas prices of the last few weeks may have had the expected effect of stimulating industrial and power generation demand for gas,” Smith said.

He said the numbers indicate that total supply of natural gas, including the importation of liquefied natural gas, has been trending down for the past six weeks after rising from the January through mid-October period.

A significant increase in hydroelectric generation may have contributed to the recent and “fairly sharp closure of what had been a very stubborn embedded surplus,” Smith said, adding the disappearance of the surplus over the past few weeks makes the outlook for lower gas prices “less convincing than in our previous forecasts.”

The turnaround in natural gas storage this year was among the most dramatic in memory. Compared to the “norm” between 1994 and 1998, storage during 2003 climbed from a deficit of 358 billion cubic feet during the second week of May to a surplus of about 285 bcf in late November.

However, Smith projected that storage in late November would decrease from 3.154-to 3.104 trillion cubic feet, a draw of 50 bcf for the week. That would be 27 bcf less than the normal seasonal draw of 77 bcf for the same period, he said.