Analysts predict higher Natural Gas Prices
Posted: Tue May 27, 2014 9:21 am
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).
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).