Two more analysts call for US gas prices to crater this summer

Washington (Platts)--25May2006

Two more US energy analysts predicted Thursday that weather-driven demand
won't absorb the large amount of natural gas in storage and that prices will
have to fall to $5/MMBtu or less before the market corrects itself.

"As new evidence of stretched storage capacity surfaces, gas futures will
likely will likely be subject to continued downward pressure, until prices
become low enough to cause power generators to switch from coal to natural
gas," Fimat analyst Antoine Halff said Thursday.

As recently as Wednesday, Southern Natural Gas said it was limiting
storage injections at its facilities in Louisiana and Mississippi as its
facilities approached 74% of capacity with three months to go in the injection
season.

RBC Capital Markets analyst Joseph Allman said he expects storage and
pipeline curtailments to increase as the summer goes on. Most shut-ins by
producers will be involuntary as pressure rises in the storage and pipeline
infrastructure and gas can't get out of the ground without expensive
compression, he said.

Allman believes gas prices will drop another $1 to $1.50/MMBtu--the June
NYMEX gas futures contract was trading around $5.94/MMBtu at midday EDT
Thursday -- and could hit $4/MMBtu this summer in reaction to the oversupply
of
gas in storage.

"We think the natural gas market will self-correct in a few ways," Allman
said. "But the primary fix results from the limited physical capacity of the
system. Pressures will build in the storage and pipeline system, involuntarily
shutting in production. This phenomenon will occur in stages and, of all
factors, put the biggest dent into the gas storage surplus."

By July, Allman believes 1% of US production will be involuntarily
shut-in by high system pressures, a total he expects to grow to 5% by October.
The producers that will be shut-in first, and the most, Allman said, are those
with interruptible contracts, but he expects firm contracts to be rationed by
the fall.

"A few producers told us that they have already curtailed a small amount
of production due to pipeline pressure issues, three to four months earlier
than usual. We have heard reports of some storage facilities being nearly full
already and of pipeline operators warning customers over the next two months
their systems will be full," Allman said.

He called for NYMEX futures prices to hit their trough in August just
before the peak of the hurricane season, dropping to $4.50/MMBtu, with
wellhead prices getting even lower in some regions, the Rocky Mountains, in
particular.

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