Natural gas to back off in spring
Purchasing staff -- Purchasing, 2/14/2005 8:53:00 AM
Prices of natural gas sold to industrial customers at spot markets this month are around $6.75/million cubic feet—somewhat higher than the 2004 average ($6.33 mcf) and the January average ($6.15 mcf) and also substantially higher than most analysts had forecast earlier. That’s because winter weather has gotten colder and working gas in underground storage has decreased so far this month to 1.3 trillion cubic feet from 2 trillion at the end of January. However, the post-heating season outlook is decidedly lower—although maybe not as low as the 2003 average of $5.82.
At present, natural gas inventories are 17% higher than the five-year average. That’s why analysts at Banc of America Securities are bearish on natural gas pricing once the winter heating season ends. The government’s Energy Information Administration agrees: “With the heating season now about two-thirds over and with ample material in storage, natural gas prices are likely to ease over the next several months.” The uncertainty is the industrial price average for the rest of the year, which analysts put around $6/mcf and which the EIA puts around $6.50. Why the uncertainty? First, in response to continued economic growth, natural gas demand is projected to increase by 3% in 2005. Second, domestic natural gas production in 2005 is projected to increase by only 1.6% from 2004 levels—partly due to high gas-directed drilling rates and partly due to continued recovery in the Gulf of Mexico from the effects of Hurricane Ivan. The wild card is that steady increases in liquefied natural gas imports, restrained export growth, and carryover from the robust early-winter storage levels may contribute to moderate improvement in full-year supply.
Now Playing: 