Analyst and investment firm Salomon Smith Barney Inc. says it expects natural gas prices to remain strong and that its earlier estimates "could prove conservative" as the US storage outlook remains grim, according to a recent company report.
This week, the American Gas Association reported the highest storage injection figure so far this season. Injections in the US totaled 78 bcf, vs. the 91 bcf recorded this time last year and the 86 bcf reported in 1998. Current storage levels are still 25% lower than a year ago, however, and are likely to enter this winter well below 2.5 tcf. Storage injections over the past 5 weeks have averaged 2.7 bcf/day, 24% lower than injections seen last year.
Last week's injection, greater than many anticipated despite being 1.9 bcf/d lower than a year ago, sparked a drop in the natural gas futures contract prices on the New York Mercantile Exchange. "However, we do not believe that this week's higher-than-expected injection was due to any sudden supply response," says Salomon Smith Barney, pointing out that gas prices for the near-month NYMEX contract are still $1.68/MMbtu above 1 year ago.
The warmer-than-normal outlook for this summer, coupled with the active hurricane season of Category-3 or higher storms forecast for the Atlantic Basin, also is keeping gas prices hot. The threat of actual passage of a severe tropical storm or hurricane in the US Gulf Coast region would require operators to shut in offshore platforms, limiting production that represents a quarter of total US gas deliverability, says the analyst.
Despite recent volatility, Salomon Smith Barney says it expects gas prices to remain quite strong and believes its $3.25/MMbtu composite spot forecast for 2000 and 2001 to be more "conservative than aggressive."
Salomon maintains, as it did in an earlier report, that its "biggest fear for the US economy is that events transpire such that supplies become so constrained this winter that the government steps in to limit industrial consumption in order to have adequate supplies for residential consumers for home heating purposes (OGJ Online, June 9, 2000)."
