Natural Gas Price Summer Wrap-Up and Outlook
Industry Overview
2012 Supply-Demand Balance Shaping Up Little Changed From 2011
13 September 2011 ¦ 36 pages
citigroupgeo.com
2011 Natural Gas Price Forecast Remains $4.25/MMBtu – Our full-year composite
spot natural gas price forecast of $4.25/MMBtu, which we established one year ago,
remains unchanged. On the one hand, a colder-than-normal start to the year and a
record-hot summer boosted demand relative to our original forecast. These have been
partially offset by a slower pace of U.S. economic growth than forecast one year ago
reducing our industrial natural gas demand outlook. Also, above-normal hydropower
supplies this year, which were only partially offset by lower-than-normal nuclear
generation, displaced some natural gas demand. But most importantly, natural gas
production growth this year has outpaced our year-ago projections with the domestic
natural gas rig count holding in stronger than projected along with robust growth in the
oil rig count which has yielded more associated natural gas than anticipated.
Sharply Reducing Near-Term Outlook Beyond 2011 – Looking ahead to 2012, we
have indicated for some time that our $5.50/MMBtu forecast was most likely too
aggressive given the strong pace of natural gas production growth this year. With the
summer now wrapped up and with some fine tuning to our supply/demand models, we
are now revising our 2012 composite spot natural gas price forecast to $4.35/MMBtu.
We are also lowering 2013, 2014 and 2015 forecasts to $4.50/MMBtu, $4.65/MMBtu
and $5.00/MMBtu, respectively, all from $5.50/MMBtu, while our longer-term outlook
beyond 2015 is unchanged at $5.25/MMBtu. As always, these forecasts assume
normal weather along with our other assumptions that are detailed in this report.
Projections Incorporate New CSAPR SO2 Rules Beginning in 2012 – Importantly,
apart from all other variables, we have boosted our natural gas demand projection from
the power generation sector by 1.0 Bcf/d starting next year as a result of the EPA’s new
CSAPR SO2 rules, although there remains significant risk that the implementation of
these new rules could be pushed out beyond next year, which would then pose
downside risk to our price projections.
Coal-To-Gas Switching Projected To Be Nearly 1.0 Tcf Again in 2012 – Overall,
assuming normal weather, we foresee the U.S. supply/demand balance little changed
in 2012 versus this year. Recall that a key variable in our price determination is the
level of coal-to-gas switching that is required to effectively absorb excess natural gas
supply so that storage does not exceed “full” heading into the winter. Thus, the level of
coal-to-gas switching needed to effectively balance the market is projected to be nearly
1.0 Tcf both this year and in 2012.
Estimate Changes – Based on this new natural gas price outlook, and combined with
some adjustments to our oil price projections, we have detailed the EPS/CFPS changes
for our E&P coverage group in a separate note. Please see our September 13th note
titled ‘Adjusting Oil/Gas Prices and E&P Estimates.’ |
