RJ Outlook for Natural Gas Prices (1/3/2017)
Posted: Fri Jan 06, 2017 11:05 am
Comments below from Raymond James "Energy Stat" dated January 3, 2017:
U.S. natural gas price outlook: As exports boost fundamentals, we are reaffirming 2017 at $3.25/Mcf while raising 2018 to $3.50 and long-term price deck to $3.00. A year ago, we were extremely bearish on the domestic gas market. Abnormally warm weather and fears of a supply glut in 2016 and beyond led us to lower our 2016 Henry Hub forecast to $2.00/Mcf and long-term price deck to $2.50. While U.S. natural gas prices had a very rough 1H16, the second half turned out to be much better than we had expected, as the ramp-up of gas exports to Mexico and recovering industrial gas demand provided incremental tightness to the market. As such, Henry Hub outpaced our initial expectations by 20%, averaging $2.41 for the full year.
Turning to 2017, we reaffirm our full-year Henry Hub forecast of $3.25, which would be the best year since 2014. As we detailed two weeks ago, exports of gas to Mexico are an increasingly important but underappreciated driver for U.S. gas demand, and should tighten the market by 0.8 Bcf/d year-over-year. Further, LNG exports should increase by 0.6 Bcf/d, while imports from Canada should decrease by 0.4 Bcf/d. While weather is always a black box, it is reasonable to assume normalization following last year’s El Niño, tightening the market by 1.1 Bcf/d. We believe the market will require higher gas prices to drive 1.4 Bcf/d of 2017 coal-to-gas switching in order to reach normal storage levels.
MY TAKE: I am more bullish on natural gas prices for 2017 because I believe normal winter weather in Q1 will push gas in storage 800 to 1,000 BCF lower than where storage was at the beginning of refill season a year ago. Refill season is April - November (243 days), so at the midpoint (900 Bcf) that adds 3.7 Bcf more demand during refill season. That is a BIG INCREASE.
If winter weather pushes into April it will be even more bullish.
U.S. natural gas price outlook: As exports boost fundamentals, we are reaffirming 2017 at $3.25/Mcf while raising 2018 to $3.50 and long-term price deck to $3.00. A year ago, we were extremely bearish on the domestic gas market. Abnormally warm weather and fears of a supply glut in 2016 and beyond led us to lower our 2016 Henry Hub forecast to $2.00/Mcf and long-term price deck to $2.50. While U.S. natural gas prices had a very rough 1H16, the second half turned out to be much better than we had expected, as the ramp-up of gas exports to Mexico and recovering industrial gas demand provided incremental tightness to the market. As such, Henry Hub outpaced our initial expectations by 20%, averaging $2.41 for the full year.
Turning to 2017, we reaffirm our full-year Henry Hub forecast of $3.25, which would be the best year since 2014. As we detailed two weeks ago, exports of gas to Mexico are an increasingly important but underappreciated driver for U.S. gas demand, and should tighten the market by 0.8 Bcf/d year-over-year. Further, LNG exports should increase by 0.6 Bcf/d, while imports from Canada should decrease by 0.4 Bcf/d. While weather is always a black box, it is reasonable to assume normalization following last year’s El Niño, tightening the market by 1.1 Bcf/d. We believe the market will require higher gas prices to drive 1.4 Bcf/d of 2017 coal-to-gas switching in order to reach normal storage levels.
MY TAKE: I am more bullish on natural gas prices for 2017 because I believe normal winter weather in Q1 will push gas in storage 800 to 1,000 BCF lower than where storage was at the beginning of refill season a year ago. Refill season is April - November (243 days), so at the midpoint (900 Bcf) that adds 3.7 Bcf more demand during refill season. That is a BIG INCREASE.
If winter weather pushes into April it will be even more bullish.