By OGJ editors
HOUSTON, Feb. 8 -- Lukens Energy Group, Houston, forecasts natural gas prices at Henry Hub will average $5.25-6/MMbtu for 2005 based upon the consultant's expectations for fuel oil prices.
No. 6 fuel oil (resid) prices have set a floor for gas prices since December 2002. Currently, No. 2 distillate is setting a ceiling for gas prices, said Lukens analysts. They calculated a 2005 gas price based upon oil price expectations and natural gas supply and demand.
In a recent briefing to clients, Lukens Vice-Pres. Glen Sweetnam forecast that US and Canadian gas production will grow by 1-2% in 2005. The increase will stem from recovery of production in the Gulf of Mexico after an active 2004 hurricane season and from entry into the market of gas supplies from the Rocky Mountains.
"Drilling activity will offset natural declines in North American production from existing fields," Sweetnam said of onshore activities in the US and Canada.
Given a normal weather, US and Canadian gas demand is expected to be flat for 2005, he said. Despite recent economic growth, he expects that a 2% decline in US industrial consumption will offset consumption growth in the residential and commercial sectors. Gas demand for power generation won't change.
"A slight growth in supply against flat demand means gas prices will trend to the lower end of the price range between the floor of residual fuel oil prices and the ceiling of distillate prices," Sweetnam said.
Winter gas price volatility will increase, while summer volatility will decline because of the link between gas prices and oil prices, he said.
