Price outlook for natural gas gets brighter

Already-high US natural gas prices are expected to rise further as a result of tightening supplies. Two financial analysts gave their predictions for the gas market in separate reports last week. Salomon Smith Barney says it is raising its full-year 2000 price forecast for natural gas to $3.25/MMbtu from $2.78/MMbtu, and a Lehman Brothers Co. official told an Independent Petroleum Association of America meeting that tighter supplies will push US gas prices to about $3.50/Mcf this winter.


Already-high US natural gas prices are expected to rise further as a result of a continued tightening in supplies.

Salomon Smith Barney reported last week that it is raising its full-year 2000 price forecast for US natural gas to $3.25/MMbtu from $2.78/MMbtu, as cash prices begin reacting to the "dire outlook" for gas deliverability in North America sooner than expected. And a Lehman Brothers Co. official told the Independent Petroleum Association of America meeting in San Francisco last week that tighter supplies will push US gas prices to about $3.50/Mcf this winter.

The composite spot price for gas has averaged $2.15/MMbtu every year of the 1990s, but this year that has changed, said Salomon Smith Barney in a recent report on natural gas prices. The composite spot price is currently running over $3.50/MMbtu. And prices will likely keep rising, with gas demand projected to increase because of a strong US economy and new gas-fired power plants coming on line, predicts the firm. In addition, gas deliverability will be off by an estimated 1 bcfd this summer vs. last.

Additional gas supplies from Canada can't be counted on either, says Salomon Smith Barney, because Canada's fundamentals and storage outlook are similar to those in the US.

The summer forecast is exacerbated by two reports�one from the National Oceanic and Atmospheric Administration (NOAA) and another from William Gray, a Colorado State University professor and hurricane forecaster�saying that this summer's hurricane season will be a busy one. Salomon Smith Barney says its forecast wasn't based on this weather information. But it did note in its report that eleven hurricanes or tropical storms are expected in the Atlantic Basin this year, and these include three major Category-3 or higher hurricanes, say NOAA and Gray. La Ni�a is forecasted to dissipate late this summer, but not before making this year's summer temperatures hotter than normal.

Meanwhile, Richard Gross III, a senior vice-president with Lehman Brothers in New York, told an IPAA meeting in San Francisco Friday that tighter supplies will push US gas prices to about $3.50/Mcf this winter. Average prices would slip to $3.48/Mcf in the first quarter of 2001, $3.22 in the second quarter, $3.17 in the third quarter, and $2.90 in the fourth, he predicted.

Gross warned that, if prices top $4/Mcf, electric utilities would cancel plans for gas-fired, combined-cycle power plants and burn coal instead.

He explained that gas storage is low and would require additions of 1 bcfd to bring stocks to the 2.8 tcf that is normal for the beginning of the winter heating season. He said the US is increasingly dependent on storage to meet winter demand peaks, but summer electric-power generation peaks increasingly inhibit replenishment of gas storage.

Gross said higher prices should result in 800 active gas drilling rigs by 2003-04, double the level of 1994-95. �Lining up the prospects will be a tougher challenge than getting the crews and equipment.�

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