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Energy analyst cuts gas price forecast; rebound expected

By the OGJ Online Staff

HOUSTON, Feb. 4 -- Energy analyst J. Marshall Adkins, one of the few remaining natural gas optimists on Wall Street, Monday threw in the towel and cut his natural gas price forecast for the year.

Adkins, an analyst with Raymond James & Associates Inc., blamed this year's warm winter, presently about to break a record set just 2 years ago. Adkins cut his first quarter 2002 gas price forecast to $2.30/Mcf from $2.75/Mcf and his second quarter forecast to $2.88/Mcf from $3.25/Mcf.

The February contract opened at $1.93/Mcf on the New York Mercantile Exchange Monday.

Temperatures during the next 2 months will be the deciding factor in a recovery's timing, Adkins said. If there is 1.5 tcf in storage at the end of March, Adkins said gas prices will likely recover later in the summer. If there is less, he expect prices to begin moving up in early summer.

For the full year Raymond James cut its forecast to $3.25/Mcf from $3.50/Mcf, but Adkins still expects a "robust" recovery in the second half of the year with gas prices rebounding to $4.25/Mcf. That still optimistic forecast is based on Adkins's belief US supply is declining much faster than most Wall Street estimates and "faster than any time we've seen in the past."

He is projecting a 5% decline of more than 2.5 bcfd on a year-over-year basis, creating a supply reduction the likes of which the "gas markets have never seen." Adkins has based the projections on surveys showing fourth 2001 quarter US gas production was down nearly 3% from the comparable 2000 period.

Adkins's also doesn't think Canada will be able to save the US's bacon this year as it has for the past 15 years. Canadian supply rose sharply through the first half of 2001 thanks to higher drilling activity and the start up of the Alliance pipeline, he conceded, and could again because of some large new field developments. But Canadian supplies into the US fell 0.5 bcfd during the past 6 months, Adkins noted.


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