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Analysts Project Natural Gas Price Stability

July 14th, 2011

OMAHA (Capstone Energy Services) – In spite of increased public controversy regarding natural gas production, particularly production from shale formations using horizontal drilling and hydraulic fracturing, analysts are forecasting relatively low and stable natural gas prices for the balance of the year and into 2012. Recent price projections for 2011 and 2012 are as follows:

2011 & 2012 Analyst Natural Gas Price Projections
                                                                     2011                 2012
Energy Information Agency                              $4.27                $4.54
Goldman Sachs                                              $4.13                $4.25
Steven Smith                                                  $4.17                $4.35
Bentek                                                           $4.04                $4.09
Raymond James                                             $4.25                $4.25
Jeffries & Co                                                    $4.27                $4.60
S&P Price Desk                                              $3.75                $4.00
Moody’s                                                          $4.00                $4.50
Average                                                           $4.11                $4.32

Interestingly, analysts who previously had lower than average prices generally raised their projections while those with higher than average projections came down. This convergence suggests a growing consensus regarding ongoing price stability and reflects a belief that production remains relatively strong while demand shows signs of lagging. Since the average price for Jan-Jul was 4.23, the implication for the balance of the year is for lower prices. The NYMEX forward curve for the balance of 2011 is $4.43 and $4.809 for 2012.

From a supply perspective, the very strong 95 Bcf injection into inventories reported last week by the Energy Information Agency (EIA) surpassed analysts’ expectations by a surprising 15 Bcf, an indication that production is, in fact, stronger than analysts had expected. In its Short Term Outlook issued this week, the EIA projects that inventories will again exceed 3.8Tcf by October 2011, thereby eliminating almost all of the current 224 Bcf shortfall of inventories relative to last year. This EIA inventory projection likewise assures strong production for the remainder of the summer. At the same time EIA raised their 2012 price projection to $4.54 due to declining production next year.

The key variable for the remainder of the year will be demand. While EIA projects 2011 industrial and electric generation demand to increase 3.2%, it is more than offset by the 5.4 % increase in production. As the summer proceeds, hotter than normal weather, as currently projected, could exceed EIA demand expectations. However, the continuing weak economy may impede expected industrial demand growth. The net effect may be higher use than expected, but probably not enough to upset the growing price stability in the market. The price volatility wild card, as always this time of year, will be hurricanes.

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By Ed Freeman

Energy Facts

Energy Facts

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Natural gas produces fewer emissions than other fossil fuels, with less nitrogen, sulfur, carbon and fine particulates.

Texas produces the largest amount of natural gas in the USA.

The biggest consumer of coal in the US is the electric power sector.

There are 17,658 electric utility generators in the USA.
 

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