Analyst: Tight market to mean $8.50 gas in 2007

GAS DAILY - Friday, 17, 2005

      Energy and Environmental Analysis on Thursday issued its first U.S. gas price projection for 2007, and it’s a bullish one—$8.50/MMBtu at Henry Hub.

      Driving the consulting firm’s forecast are expectations of prolonged tightness in the supply/demand balance and doubts that liquefied natural gas imports will be adequate to fill the gap within two years, EEA Director Kevin Petak told Gas Daily.

     The Arlington, Va.-based firm kept its 2005 price prediction of $6.45/MMBtu unchanged and left its 2006 forecast of $7.50/MMBtu intact. In the near term, “higher oil prices continue to put upward pressure on natural gas prices by increasing the cost of fuel-switching,” EEA said in its monthly market update.

     For 2007, EEA’s $8.50/MMBtu forecast is more than $1/MMBtu higher than the current NYMEX 12-month strip for that year. “Why are we so bullish?” Petak asked rhetorically. “There continues to be pressure on demand from power generation, and we don’t see any relief on the supply/demand balance until LNG enters the marketplace.”

     Even then, Petak cautioned that LNG will only offer modest relief because of competition for the commodity around the world. “It’s a race to market, and LNG appears to be a savior,” Petak said. “But the global market is tight.”

     LNG imports should double to 4.1 Bcf/day by 2007 if import terminals and related infrastructure are built as planned, EEA predicted. Meanwhile, the firm thinks U.S. gas production will grow by 1%/year through 2007 while Canadian imports remain steady.

     But the analyst said increases in gas-fired power generation will soak up any excess supply—and perhaps more—over the next two years. As a result, “natural gas prices will continue to be relatively high and volatile,” the report said.

BH