9 Mar 2015
US Natural Gas: Lowering the price forecast - DB
FXStreet (Barcelona) - Michael Hsueh of Deutsche Bank, explains the reasons behind lowering the price forecast for US Natural Gas to $2.6/mmBtu.
Key Quotes
“We lower our price forecast for summer 2015 to USD2.6/mmBtu on the logic of incentivisation for the electric utility sector as a demand sink. This scenario assumes a relatively conservative dry gas production outlook, particularly in comparison to growth observed in Q4-2015.”
“We also reduce our expectations of 2016 pricing by USD0.40/mmBtu to USD3.5/mmBtu on the expectation of higher production growth (+2.5 bcf/d) particularly in the Northeast as well as the resumption of associated gas production growth.”
“We expect that production growth will be limited over the next two quarters as producers defer well completions. The consequent increase in the backlog may potentially add to production growth in later quarters particularly if completion costs fall in the interim.”
“While Q4-14 winter weather was very slightly milder than normal, Q1-15 weather has been quite severe although it has not surpassed the extremes of Q1-14. Yet NYMEX prices have shown limited gains, suggesting that the balance will remain weak as we move into summer.”
“Risks to the view include US coal prices with a $5/st move being equivalent to a delta of $0.30/mmBtu in the gas price equivalent.”
Key Quotes
“We lower our price forecast for summer 2015 to USD2.6/mmBtu on the logic of incentivisation for the electric utility sector as a demand sink. This scenario assumes a relatively conservative dry gas production outlook, particularly in comparison to growth observed in Q4-2015.”
“We also reduce our expectations of 2016 pricing by USD0.40/mmBtu to USD3.5/mmBtu on the expectation of higher production growth (+2.5 bcf/d) particularly in the Northeast as well as the resumption of associated gas production growth.”
“We expect that production growth will be limited over the next two quarters as producers defer well completions. The consequent increase in the backlog may potentially add to production growth in later quarters particularly if completion costs fall in the interim.”
“While Q4-14 winter weather was very slightly milder than normal, Q1-15 weather has been quite severe although it has not surpassed the extremes of Q1-14. Yet NYMEX prices have shown limited gains, suggesting that the balance will remain weak as we move into summer.”
“Risks to the view include US coal prices with a $5/st move being equivalent to a delta of $0.30/mmBtu in the gas price equivalent.”