Gas prices will be best surprise of '99, says oil analyst
By John Paul Pitts
Oil Editor
The surprise of 1999 is that, despite a price depression expected to occur this spring, natural gas prices will recover and perhaps increase during the winter of 1999.
In a presentation at CEED this week, David Garcia, analyst for Everen Securities, said several factors will begin occur after the April heating season to eliminate the present inventory overhang, created by two consecutive mild winters and a record build-up of storage. ÒThere is a lot of natural gas in storage, and the year may end up with 1,500 Bcf or more.Ó
Garcia said factors that will make a difference are: 1. a 35 percent drop in capital expenditures, 2. the fact that 22 percent of natural gas production is coming from wells drilled in the last 12 months, 3. increasing demand.
Since 22 percent of natural gas production comes from new wells, and since natural gas drilling has been linked to the downturn in oil prices, the analyst says decreased deliverability will cause the large inventory of natural gas disappear very quickly. He said load demand and annualized production were in exact balance as of December 31, 1998, but a production deficit is already occurring at the wellhead.
"The surprise of 1999 will be how rapidly inventories are pulled down, and a deficit becomes apparent," said Garcia. "The rule is very simple, cut supply, price goes up." He speculated that the price for natural gas at this same time in 2000 could be double todayÕs price, and estimated natural gas production could fall 3.3 percent below demand.
Increased demand for electrical generation and home heating will also be a factor, along with the potential for a not-so-mild winter. But Garcia does not put much stock in a bitter winter for 1999-2000. He said 1998 was the warmest year since measurements were first made 119 years ago. "It was also the 20th consecutive year that temperatures have been warmer than average. According to the National Oceanic and Atmospheric Administration, of the ten warmest years in the past 30 years, seven have occurred in this decade." Our assumption is that consumption will be flat, said the analyst. |
