Natural Gas Prices Expected to Fall

By Morrow, Darrell | THE JOURNAL RECORD, December 21, 1993 | Go to article overview

Natural Gas Prices Expected to Fall


Morrow, Darrell, THE JOURNAL RECORD


Natural gas prices are likely to drift downward, but hang at a survival level for producers during the next two years, if the predictions of two forecasting companies prove true.

The 1994 natural gas price forecast of Rauscher Pierce Refsnes Inc., Dallas-based investment company, has been revised lower to an annual average of $2.02 per million cubic feet from an earlier forecast of $2.35.

Annual average spot gas price was forecast by Rauscher to finish 1993 at $1.99 per million cubic feet.

Natural gas prices were higher Monday on the New York Mercantile Exchange, with contracts for delivery in January settling at $2.172 per 1,000 cubic feet, up 6.7 cents.

Light sweet crude oil for delivery next month settled at $14.18 per barrel, up 27 cents. The February contract, which will represent the spot-month on Tuesday, fell 4 cents to $14.38 per barrel.

Failure of the latest meeting of the Organization of Petroleum Exporting Countries to achieve a cut in oil production to stimulate the lowering price of oil as it dropped to about $16 per barrel was cited as the reason for the revised forecast for lower natural gas prices, according to Lawrence A. Crowley, Rauscher researcher.

"One such consequence of continued weak oil prices, at least in the first half of 1994, may be a dampening effect on domestic natural gas prices," Crowley wrote in his revised forecast.

"To the extent that crude prices remain low in the spring and summer months, we believe that utility electric generators may switch to cheaper residual fuel oil from natural gas. we have already seen some switching as price disparities widened," he wrote.

"While the anticipated load switching is not expected to be large by historical standards, it could be enough to put small amounts of gas production into the market on a marginal basis, in turn putting some pressure on natural gas prices.

"It should be noted that widespread fuel switching is not possible, given today's environmental standards. furthermore, domestic production of residual fuel oil has dropped dramatically over the last seven to eight years, from about 1.6 million barrels per day to under 1 million barrels per day as refineries continue to upgrade facilities," Crowley wrote in explaining his revised forecast.

The Washington and Houston-based consulting firm of Dar Co., predicts that April 1993 may represent the peak in Gulf coast natural gas spot prices through the Fall of 1995.

Dar Co., founded by Vinod K. Dar, formerly with Hadson Corp., of Oklahoma City, forecast 1993 spot natural gas prices to average $2.10 to $2.12 per million cubic feet when all the figures are in.

"Gas is still cheap compared with a decade ago, but it is about to become even cheaper in real terms, over the next 18 to 24 months," the Dar forecast stated.

"Over the next year and a half to two years, three factors will cause the consumer price of natural gas to drift appreciably lower: "Wellhead gas prices will decline to perhaps around $1.

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