Tags: Goldman | Natural | Gas | Prices

Goldman Sees Higher Natural Gas Prices in 2013

Thursday, 12 April 2012 07:21 AM

Natural gas prices will likely rise in 2013, with normal winter temperatures and slower production growth offsetting the effect of current oversupply, said Goldman Sachs Group Inc.

U.S. natural gas prices reached a 10-year low after a warm winter that exacerbated oversupply from strong growth in U.S. shale gas production, leading to record high end-of-winter inventories.

"A return to normal winter temperatures next year combined with slower production growth off the declining natural gas rig count will substantially reduce the amount of overall coal-to-gas substitution that will be needed next year, setting the stage for a return to higher prices in 2013," analyst David Greely said in a research note dated April 11.

The Wall Street bank recommended a long trading position in summer 2013 NYMEX natural gas (April-October contract) with a current value of $3.36 per million British thermal units (mmBtu).

"We see upside to longer-dated natural gas and expect the market consensus around prices beyond this summer to shift to a more bullish stance in coming months," Greely said.

However, he added that upside relative to the forward curve would remain subject to the high level of policy risk associated with main structural demand drivers such as environmental regulations for power plants, LNG exports, or further inroads into the transport sector.

"We do not see natural gas prices moving sustainably above $5.50-6.00 per mmBtu over the foreseeable horizon, unless LNG exports or transportation sector demand makes surprisingly good progress," Greely said.

The bank remained bearish on near-term prices, citing lower demand and record-high inventory levels.

Goldman lowered its 2012 average NYMEX natgas price forecast to $2.40 per mmBtu from $3.10 per mmbtu, saying prices would need to remain low this summer to continue to motivate coal-to-gas substitution.

The bank sees natgas prices averaging $4.00 per mmbtu in 2013.

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Thursday, 12 April 2012 07:21 AM
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