US again raises natgas price forecast for 2010

06 October 2009 18:54  [Source: ICIS news]

WASHINGTON (ICIS news)--The US on Tuesday again raised its forecast for natural gas prices next year, saying that reduced drilling and production will combine with economic recovery and increasing demand to drive gas to an average of $5.02/MM Btu for 2010.

The Department of Energy (DOE) said that while US overall gas production is expected to show a 1.5% increase for 2009, natgas output will decline by a significant 3.8% in 2010.

Even though 2009 gas production is expected to show an overall gain for the full year, output already has been declining in the second half of this year, according to the Energy Information Administration (EIA), the department’s data and analysis arm.

In its monthly short-term energy outlook (STEO), the administration said it “expects the pullback in drilling to lead to a 3.6% decline in lower 48 production from the first half to the second half of 2009”.yes

Faced with a new record storage level - which is expected to reach 3,800bn cubic feet (bcf) by the end of this month - and relatively low current prices, production has been falling off, the administration said.

“In addition to the natural rate of decline from producing wells, the current forecast assumes some additional production curtailments as natural gas inventories begin to swell toward capacity limits this month,” the agency said.

Although the number of working gas rigs has increased in recent weeks, EIA said it “expects domestic natural gas production to continue to fall, with marketed production during the first half of 2010 to average about 1.8 bcf per day lower than the second half of 2009”.

That would represent about a 3.4% reduction in US daily output of natural gas, according to EIA records. The US produces 20,000 bcf of gas annually and imports some 3,000 bcf to meet its yearly consumption of around 23,000 bcf.

However, while US gas output is set to decline, the administration said that “economic recovery and increasing demand next year are expected to push prices up”.

Consequently, the EIA is raising its 2010 average natgas price to $5.02/MM Btu, an increase of 5% over the $4.78/MM Btu price forecast for next year that the administration issued just last month.

The availability and price of natural gas is of ongoing interest to the US petrochemicals industry and downstream chemicals manufacturers because it is a major feedstock and power fuel for the sector.

The EIA left its forecast prices for crude oil unchanged from last month’s short-term energy outlook.

The US benchmark West Texas Intermediate (WTI) crude is forecast to average about $70/bbl over the next six months, the administration said, and then rise gradually to about $75/bbl by the end of 2010 “as US and world economic conditions improve”.

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