The return of gas production could hurt 2010 US
prices: analysts
Washington (Platts)--2Nov2009/1113 pm EST/413 GMT
Shut-in natural gas production is returning to US markets in
response to slightly higher prices, the energy commodities team at
Goldman Sachs said Monday, warning that if the comeback is too quick it
could dampen prices next summer.
Goldman is predicting the January NYMEX contract will roll off
the board at $6.50/MMBtu, rising slightly to $7/MMBtu at the April 2010
close and reaching $7.70/MMBtu at the expiration of the November
contract.
Goldman analyst Samantha Dart said she believes the market was
3 Bcf/d tighter in October than last year, but warned that was 450 Mcf/d
below what she would have predicted.
"This difference, however, would be consistent with shut-in
production returning to the market following the rebound in prices to
healthier levels, which started at the end of September," Dart said,
noting that her colleagues who analyze energy stocks predict another 400
Mcf/d entering the market in October and November.
Further, Goldman's analysts believe there is 900,000 Mcf/d
worth of gas held in wells that producers won't complete until prices
recover.
The danger, Dart said, is that "these delays in aggregate
production declines pose an important upside risk to our 2010 production
level expectations and, consequently, a downside risk to our price
forecasts."
"The higher the production levels leading into the 2010/2011
winter season, the lower the amount of drilling that would be necessary
in the market to keep inventories at comfortable levels through March
2011," she said.
"Hence, if marginal conventional drilling proved unnecessary in
2010, natural gas prices would not have to reach $7.50/MMBtu, which is
our current summer 2010 price forecast," Dart concluded. "Instead,
natural gas prices would more likely be in the $6/MMBtu range."
--Bill Holland, bill_holland@platts.com
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