Investment bank Raymond James' top natural gas analyst sliced 12% off his 2012 natural gas price forecast Monday, saying growing supplies will smother anemic demand and prices will have to go below $3/Mcf in the summer to avoid overwhelming storage capacity.
Raymond James slashed its previous $4/Mcf forecast by 50-cents to $3.50/Mcf, and predicted prices could drop below $3/Mcf this summer as storage fills. This is the second time in two months Raymond James has trimmed its gas price forecast.
"According to our working model, the gas market has been running 2.5 Bcf/d looser over the past 20 weeks, a trend we don't anticipate slowing in the near term," analyst Marshall Adkins said in a note to clients. "We remain firmly in the bearish camp and don't see demand being able to catch up with supply anytime soon."
Adkins said natural gas production is still growing at 4 Bcf/d per year because of dry gas production associated with liquids-rich plays. Cheap gas in the US will trim imports from Canada back to 1 Bcf/d next year, Adkins said, while liquefied natural gas imports will continue to decline below their current sub-1 Bcf/d level.
Demand can't grow much, Adkins said, because most of the "low lying fruit" of coal-to-gas switching has already happened, industrial demand is hobbled by the slow economy, and weather induced demand, using 30-year models, won't be as high as the 2011 season.
"Our 2012 gas storage model indicates 4.59 Tcf of summer-ending gas inventories," Adkins said, "but we estimate there to be only roughly 4 Tcf of total storage capacity."
"This means that gas prices will need to be low enough to encourage production shut-ins or more coal-to-gas switching," Adkins concluded. "Either way, it doesn't bode well for gas prices."
