Consulting Firm Issues Natural Gas Price Update

An updated third-quarter price forecast from consulting firm R.W. Beck Inc. projects average gas prices at $5.86/MMBtu, a $0.50/MMBtu increase from the second quarter forecast.

Management consulting and engineering firm R. W. Beck, Inc. today issued the third quarter update to its natural gas price forecast. The new forecast’s annual average price at the Henry Hub for 2004 increases by approximately $0.50/MMBtu to $5.86/MMBtu.

The difference between R.W. Beck’s previous forecast and actual monthly spot prices is almost entirely attributable to the unexpected increase in oil prices in the second quarter, according to Catherine Elder, leader of the Natural Gas and Fuels Practice in Sacramento. “All market drivers are behaving as we expected, except the oil price of $40 per barrel. Natural gas injections, demand and production are right where we projected they would be,” she says.

As noted in R.W. Beck’s analysis, storage injections, after adjusting for weather, are slightly ahead of schedule � suggesting that production is beginning to grow larger than demand even though it appears that record high well completions are still needed to match production with demand for natural gas. Persistent high prices have finally pulled mid-July’s gas rig count close to 1,050 � a level last seen in 2001, at the end of the last price spike.

R. W. Beck continues to expect lower prices later in the year and next as new production from last year’s increase in drilling results in looser supply. Prices will drop over the next several years before rising to the approximately $4.30/MMBtu level. This view assumes that very high numbers of new wells are needed, along with the equivalent of one new LNG terminal every other year, to meet projected demand. Higher than expected demand and nervous oil markets are the primary near-term uncertainties in the analysis.