Analysts predict higher Natural Gas Prices

[dan_s]

IMO RJ is still too low on the price forecast. If we start next winter with 3,400 bcf in storage, the first cold wave in December will send gas prices a lot higher than $4.50. - Dan

Raymond James Equity Research

Energy Stat: 2014 U.S. Storage Refill Problems Drive RJ Gas Forecast Higher [iEne052714b_162550]
Analyst(s): J. Marshall Adkins & James M. Rollyson
[Industry Classification: Energy]

After enduring one of the toughest winters that Mother Nature has dished out in years, the gas markets are now focused on the ability to refill gas storage this summer. We think the market is underestimating the difficulty in filling storage this year; thus, higher-than-consensus natural gas prices are likely later this summer. Our 2014 U.S. gas model currently suggests summer ending storage of ~3.4 Tcf, or nearly 500 Bcf below "full" storage. We believe that U.S. natural gas prices will need to average ~$4.75/Mcf for the rest of the year to encourage enough gas-to-coal switching just to reach our below-normal storage target. Looking beyond October, it appears that this colder-than-normal past winter will have a carryover effect upon the 2015 natural gas equation. Even if we assume a return to the 10-year average weather, we think 2015 natural gas prices will need to average closer to $4.25 (or $0.50 higher than our previous $3.75 estimate) to refill 2015 summer gas storage. We note that our current models assume 1) robust production growth out of the Marcellus/Utica that is unrestricted by pipeline bottlenecks and, 2) minimal gas price differentials between basins with seamless ability for utilities to easily switch from natural gas to coal fuel for generation. That means there is potential for even lower storage numbers than we are modeling. Finally, improving visibility on higher industrial, LNG, and petrochemical gas demand growth after 2015 has encouraged us to increase our long-term U.S. natural gas price deck to $4.50 (from $4.25).

[dan_s]

Joe Bastardi's weather forecast for this summer (listen to his weekend update at http://www.weatherbell.com/) is cooler and wet in the Midwest and hotter than normal in the South. There are a lot more natural gas fired power plants in the South, so this should be good for gas prices. However, if the large cities up North say cool it will reduce power demand up there.

BTW Joe is forecasting that we may see record levels of sea ice by year-end and another cold winter in North America.

I listen to Joe's weekly update each Saturday and you should all do the same. Weather has a direct impact on energy demand and Joe is the best long-range forecaster.