While predicting that US natural gas prices will reach $6/MMBtu by 2015, Goldman Sachs analysts projected they will average about $4.25/MMBtu in the near term as new shale gas continues to flow into the market.
Goldman said it believes gas supplies will grow by 2.9 Bcf/d this year and by 1.2 Bcf/d in 2012, but said higher-than-expected coal prices are creating a price floor for gas as utilities switch toward the fuel.
"US coal prices have traded above our expectations this year, allowing this fuel substitution to take place at a higher gas price level," Goldman said.
The investment bank's coal analysts are forecasting Central Appalachian coal prices of roughly $5.60/MMBtu-gas equivalent because of increased demand for CAPP in the export market.
Based on coal prices, Goldman's analysts raised their gas price forecast slightly to $4.50/MMBtu over the next six months to a 2011 average price of $4.13/MMBtu. The bank forecast gas prices will average $4.25/MMBtu in 2012.
After that, Goldman said expects that a combination of coal plant retirements and a rise in industrial demand will erode more the gas surplus and strengthen prices. In addition, long-term US natural gas demand may be further supported by possible delays in the construction or license renewals of nuclear power plants as well as by potential US LNG exports, the bank said
"We believe that US natural gas prices will likely be supported above the $6/MMBtu range from 2015 onward," the analysts said in a note to clients.
