Natural Gas Prices Face Downward Pressure In Coming Year

摘要

The next 12 months are likely to be challenging for natural gas producers. It is critical, therefore, to accurately assess downside price risks, and to act quickly and decisively to ensure cash flow remains adequate even if gas prices continue to decline. During 2008, prices at the Henry Hub fell from $13.31 an MMBtu in early July to below $5.50 on some days in December. Substantial further declines are likely this year, potentially to less than $4.00 an MMBtu. Cash flow could be seriously impaired for producers that are not already fully hedged, requiring further spending cuts by these companies. In assessing the remaining downside price risks, last year's price movements must be put into perspective. By early 2008, the U.S. market already was oversupplied for a "normal" weather scenario. High prices were possible only because for more than 12 months beginning in mid-2007, weather-related demand for natural gas had been consistently far higher than normal. Core demand for electricity also was growing, thereby increasing the power sector's gas consumption. Over these 12 months, the two factors combined to increase demand by more than 1 trillion cubic feet, offsetting rapidly increasing U.S. production.