Saturday, September 1, 2012

(3) Enercom presentations on future natural gas prices

I have been listening to the webcasts given at the Enercom:

In particular the following webcasts made the following predictions for natural gas next year (all assuming normal temperatures):

Energy Directions - $7+/mcf average for Henry Hub price in 2013
Wells Fargo - average $3.50/mcf thru 2017
Credit Agricole - $4.00/mcf in 2013

So who is right?  I don’t know, but here are some of my key takeaways made by each presenter:

Energy Directions

- Energy Directions based their prediction mostly (solely?) on increasing demand
- Many slides demonstrated how the U.S. economy and the worldwide economy is rebounding
- longer than normal economic downturn has created lots of pent up demand
- predicted that by 2017 that U.S. electricity generation from natural gas will double from 20 Bcf/d to 40 Bcf/d mostly at the expense of electricity generation from coal (current total usage of natural gas is approximately 65 Bcf/d)

Wells Fargo

- Northeast Production Potential 15.5 Bcf/d by 2017 (slightly over 8 Bcf/d currently)
- predicts that Henry Hub prices remain under downward pressure with market rallies stifled by a supply response.  Henry Hub averages about $3.50 through 2017.

Credit Agricole

- $4.00/MMBtu in 2013
- long term equilibrium of $5.00/MMBtu with potential range of $4.00/MMBtu to $6.00/MMBtu
- slide 10 shows the North American supply cost curve used for the prediction
- 12 to 15 month lag between the decline in rig count and a supply response

Again, I don’t know who is right, but I liked Credit Agricole’s analysis best as they seemed to me to incorporate the best blend of supply, demand, and the marginal cost of production.

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