Natural Gas Price Forecast - May 1

[dan_s]

Raymond James Energy Stat dated 5-1-2020

As we pointed out in our natural gas Stat of the Week, our new lower oil price forecast implies, a lot less U.S. associated gas production in 2H20 and
especially in 2021. In fact, although U.S. associated gas volumes will increase in 2020 as a result of the massive 2019 exit-rate, given the current ~
$20s/bbl oil price environment and our updated rig count (falling from ~800 rigs at year-end 2019 to ~400 rigs by the middle of 2020, and exiting
2020 at ~390 rigs), U.S. associated gas is poised to see a ~2.1 Bcf/d decline in 2021.

RJ's Henry Hub (HH) natural gas price forecast updated 5-1-2020:
2020:
Q1A: 1.98
Q2E: 1.70
Q3E: 1.60
Q4E: 2.30

2021
Q1E: 2.80
Q2E: 3.30
Q3E: 3.90
Q4E: 4.00

All else equal, the worse things get for oil, the better they get for U.S. gas (as U.S. associated gas production growth slows). We now expect U.S.
gas supply to increase 3.1 Bcf/d in 2020 and decline 5.2 Bcf/d in 2021, a massive change versus where our model stood just a short month ago.
However, the COVID-19 pandemic that's obliterating oil markets is likely to also result in a decrease in U.S. natural gas demand — both domestic
and international (important for U.S. LNG exports). For 2020, we are modeling the U.S. gas demand impact from the pandemic to average ~3 Bcf/
d, peaking in midyear. We think this will cause Henry Hub gas prices to remain below the $2 mark in 2020. As we near the end of this year, we —
and pretty much everyone else — are hoping global demand normalizes. This alone could cause U.S. natural gas prices to creep above $2/MMBtu.
For full-year 2020, this equates to an average price forecast of $1.90 — down from our previous forecast of $2.30. Looking further ahead — and
barring a lingering recession due to the "knock-on" effects of the pandemic — we think a partial "snap back" in economic activity and a massive
decline in U.S. gas supply in 2021 should result in significantly higher prices next year. We expect an average Henry Hub price of $3.50 for next year
and anticipate gas reaching the $4 threshold in 4Q21 (with 10-15 cents further upside potential if our team is too optimistic on oil prices).

[dan_s]

I'm actually more bullish than RJ because the active U.S. rig count is already down to 408 and likely to drop near 200. Plus, lots of wells will be shut-in because of the oil storage problem and you can't just shut in the oil.

Obviously, a hot summer followed by a cold start to the next winter heating season will have a lot to do with Q3 and Q4 gas prices.

The large-cap gassers have all announced cuts in their D&C capex budgets and they aren't going to ramp up to produce more gas until prices move a lot higher.