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Little upside for natural gas prices this year: analyst

Keywords: Tags  Justin Carlson, Bentek, natural gas prices, Thorsten Schier

NEW YORK — There will be little upside for natural gas prices in 2013, according to an industry analyst.

"There’s probably more downside risk than upside risk," Justin Carlson, manager of energy analysis at Evergreen, Colo.-based Bentek Energy LLC, told AMM, adding that although the company forecasts an average 2013 price of about $3.46 per million British thermal units (mmBtu), tags could well be lower.

The New York Mercantile Exchange’s Henry Hub natural gas price for March delivery settled at $3.16 per mmBtu on Feb. 14.

The guarded forecast comes as stockpiles of gas remain high and more supply waits in the wings.

"Even in our forward curves, I would argue there’s downside risk based on the fact that there’s significant production still to come online," Carlson said, pointing to about 10 billion cubic feet of gas-processing capacity that could potentially start up this year.

A recent shift to exploring for liquids rather than for low-priced gas has not necessarily led to a cutback in natural gas production. "There are a lot of oil-rich plays in the Utica (shale) and in the Eagle Ford (shale) that produce a lot of residue gas," Carlson said.

Gas producers also have become more efficient, making it unlikely that there will be significant production cutbacks, even at lower prices. "They’ve realized better economics," Carlson said. For example, Encana Corp. recently announced that it will again increase drill rigs in the Haynesville shale, which underlies southwestern Arkansas, northwest Louisiana and east Texas, because decreasing production costs there make output profitable even at current price levels, he said.

The market is unlikely to see significant price spikes even in the long run, although demand is expected to pick up significantly due to eventual exports of liquid natural gas (LNG) and increasing industrial use, as any rise will draw out ample additional production.

"There’s a significant amount of supply that becomes very economic in the $5 to $6 range," Carlson said.

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