US gas prices may see parity with coal absent strong storms: Bank

US gas prices may see parity with coal absent strong storms: Bank

Knoxville, Tennessee (Platts)--12Jul2006

In trimming 65 cents from his 2006 US spot natural gas price estimate, a
Bank of America analyst said it was conceivable that absent strong hurricane
activity in the Gulf of Mexico or an extremely hot summer, gas prices could
drop far enough in 2006 to reach parity with coal prices.

BoA's Robert Morris cut his full-year 2006 spot price estimate to
$6.50/MMBtu, compared with a previous estimate of $7.15/MMBtu. He cut his Q2
2006 composite spot price to $6.15 from $6.75/MMBtu and cut his Q3 and Q4
projections to $5.75 and $6.75 from $7 and $7.65/MMBtu, respectively. He left
his 2007 forecast unchanged at $7.50/MMBtu.

Morris said the NYMEX gas futures strip price for the rest of 2006 was
about $7.35/MMBtu. That price takes into account "a more active-than-normal
Atlantic Basin hurricane season along with the view that the 'clock is reset'
November 1 with regard to natural gas storage levels and prices" but said "we
do not necessarily agree" with those views.

"Our concern at this juncture is still that natural gas prices continue
to drop leading up to next winter without another severe hurricane season in
the Gulf of Mexico and/or a much warmer than normal summer," he said.

Morris said June was "the mildest on record with regards to global
tropical storm activity," and that he continues to predict that storage will
end the injection season with more than 3.6 Tcf in inventory.

On the supply side, he expects US supply will increase by about 0.8 Bcf/d
year-over-year for July through October, on increased domestic production,
slightly higher Canadian imports and more liquefied natural gas docking.

"Overall, we attribute a high probability that there will still be
further downside to natural gas prices relative to oil prices at some point
leading up to next winter," Morris said. "However, we are continuing to assess
the supply and demand variables as summer kicks off and we recognize the odds
that Mother Nature could intervene in the meantime."

--Stephanie Seay, stephanie_seay@platts.com

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