US cuts 2010 natgas pricing forecast by 14% on higher supply

06 April 2010 19:49  [Source: ICIS news]

WASHINGTON (ICIS news)--The Department of Energy (DOE) on Tuesday cut its 2010 forecast for US natural gas prices by 14% despite a nearly 2% gain in predicted consumption, citing increased production and supplies of domestic natural gas.

In its monthly short-term energy outlook (STEO), the department maintained its forecast for mostly steady domestic pricing for oil at around $81/bbl on average for this year and an average $85/bbl for 2011.

For natural gas, however, the department foresees significant pricing shifts, with its new estimate for the 2010 average Henry Hub spot price at $4.44/MMBtu, a figure that is 73 cents, or 14%, below the full-year average price of $5.17/MMBtu that the department predicted just a month ago.

The department’s Energy Information Administration (EIA) said this “significant downward revision” in the natgas price forecast for 2010 was “because of an average 2 billion cubic feet [bcf] per day upward revision to the 2010 domestic natural gas production forecast”.

The sharp revision in EIA’s natgas pricing forecast comes as the American Gas Association (AGA) reported the highest level of domestic US known reserves of natural gas in more than 35 years, approaching 250,000 bcf at the end of 2009.

The AGA attributed the increased supply to gains in resources from shale gas and tight sands.

The availability and pricing of natural gas is a major concern for US petrochemical producers and downstream chemical and resins manufacturers because the industry is heavily dependent on natural gas as both a feedstock and energy fuel.

The EIA said it expects natural gas prices to remain relatively low for the next several months, in large part because higher than usual winter demand has slackened with warmer North American weather.

But the harsh winter temperatures that dominated much of the first quarter this year, along with increased gas consumption by industry, will boost full-year 2010 US gas use by 1.9% to 63.8 bcf per day, according to EIA.

However, the department said that continuing low prices for natural gas will help drive higher costs in 2011.

“Sustained low prices could reduce drilling activity over time,” the EIA said in its outlook summary.

“As a result, EIA expects production to decline and prices to increase in 2011,” with the 2010 average of $4.44/MMBtu expected to give way to a higher average of $5.33/MMBtu for next year.

The department said it expects US domestic gas production to decline by 0.7 bcf per day, or 1.2%, in 2011.

In oil, the EIA said it’s assessment of world oil markets is largely unchanged from last month’s outlook, “and world oil prices will likely continue to firm and increase slightly in response to the global economic recovery”.

($1 = €0.74)

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