Mish's Global Economic Trend Analysis Message Board

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Strategies & Market Trends : Mish's Global Economic Trend Analysis

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To: mishedlo who wrote (3805)	4/7/2004 11:54:08 AM
From: yard_man	Read Replies (4) of 116555

I have this saved to disk already. While we are talking about it let me address a couple of items regarding nat gas forecasts -- why I think they are wrong -- both about demand and supply. ELECTRIC DEMAND: 1) Growth in electric generation demand for natural gas. - temporarily we got an overbuild in gas fired generation -- there are "deals" to be had on gas fired capacity which was built on electric price curves that were over-optimistic (this is the near term) -- (capacity factors remain too high in the models for gas fired generation -- they just won't run as much as folks have been saying) - most electric load forecasting -- even from the big assocations is based on flawed macro-economic models -- i.e. they do not anticipate us slipping back into recession -- the recent elecric growth of the past 5-6 years has been above par with longer term historical trends -- -- my own view is that we have 4-5 years of sub-par growth in electric demand coming (which will give us constency with the longer term trends when the whole period is looked at from say 2011-2012) -- mostly owing to the slowing of the construction boom Bottom line: Electric demand growth sub-par for the next 4-5 years at least -- this will clip as much as 1/4 - 1/2 off the rate of growth in nat gas demand which is attributable solely to gas-fired generation 2) On the plus side for demand -- I think industrial "demand destruction" has run it's course -- there is no additional demand to destroy at the margin without significantly higher prices -- I mean several percent higher average prices 3) Something that I have not seen included in demand models -- at least explicitly in the overview is the question of oil prices -- suppose crude hits 60/bl sustained averaged by 2007-2008 timeframe -- what would that mean?? Well it would mean that the demand models for all that cheap LNG and the other new resources would find a LOT more demand than is anticipated currently ... Supply: All the forecasts I have seen have a very large amount of the incremental supply added from unconventional resources -- it seems like the expected contribution to new supply from LNG from 07 forward is more than 1/3 of these new resources ... I think these forecasts -- both for LNG and the deepwater resources are way OVER-optimistic Estimates on additional supply from Canada and other NA regions are probably the least suspect -- but they aren't the lion's share of the "new" gas I think significantly higher prices are in the offing, even if we slip back into recession. A large spike will happen in 07 or 08 if LNG doesn't provide the supply here that has been anticipated -- the market may start to discount this seriously as early as the summer of 05 or winter of 05

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