US natural gas prices may be down 50 percent from record highs in December, but analysts say strong spring and summer fundamentals are likely to leave consumers facing another year of historically high prices.
While tapering heating demand as winter draws to a close has helped soften the market in recent weeks, analysts said, near record-low gas inventories and lagging production should keep the supply-demand balance fairly tight this year, particularly when air conditioners start cranking this summer, putting a strain on electricity plants that burn natural gas.
"Storage is headed toward record lows, and we'll have to inject that much more gas to get inventories back to even a minimum level by next winter," said Bryan Sanderson, associate at Massachusetts-based consultants Cambridge Energy Research Associates.
US gas inventories slipped to 711 billion cubic feet (bcf), or 37 per cent below last year and 35 per cent below the five-year average, according to recent data from the American Gas Association, an industry trade group.
And storage levels are expected to shrink to near 600 bcf by March 31, or just above the historical end-March low of 574 bcf set in 1996.
Near-record inventory declines during a very cold November and December helped deplete stocks and spike Henry Hub gas prices to an all-time high of $10.10 per million British thermal units (mmBtu) before a more seasonal January and February pressured the benchmark back to the $5.00 area, almost double the level seen at this time last year.
Henry Hub in Louisiana is a major delivery point for pricing most wholesale US natural gas.
Sanderson said he expected Hub gas to trade in the $5.00-6.00 range this summer and average $5.60 for the year, well above last year's record average of $4.13.
But he and others did not rule out sharp price spikes this year, though no one predicted a repeat of last December's surge above $10.00.
"The market is tight and low storage injections and a hot summer or a cold early winter, could all lead to some extreme volatility," Sanderson said.
With production expected to be up just 2-3 per cent this year and more than 30,000 megawatts of new gas-fired power generation slated to come on line, analysts said, storage operators will be hard-pressed to rebuild stocks to comfortable levels by next heating season.
"We need to see some aggressive injections to adequately replenish storage, but we also expect substantial increases in gas-fired generation.
We could see some dramatic price spikes if it's a warmer-than-normal summer," said Jay Yannello, senior gas analyst at UBS Warburg in New York.
While analysts generally expect gas prices this year to eclipse last year's record, they said an economic slowdown in the US could soften demand and temper gains.
© 2001 Mena Report (www.menareport.com)