Western analysts predict gas price to rise

Azerbaijan, Baku, August 25 / Trend , A.Badalova /

Future prices for gas in the U.S. last week for the first time in seven years dropped below $110.28 per thousand cubic meters. The main cause of the fall was the U.S. Department of Energy report on the growth of gas reserves.

Analysts, however, continue predicting an increase in fuel prices in the long-term outlook.

The analysts of Capital Economics, one of the leading economic research consultancies in the UK, say that the reduction in the gas prices was caused by high supply under non-growing demand.

Looking ahead, further falls in gas prices are probable, but only in the near term, the experts said.

"While demand for gas in the US fell about 3% y/y in May, on a rolling 12m basis, with industrial demand (representing about 30% of total demand) falling the most (7% y/y), production has continued to increase," James Lord, international economist at British company, told Trend .  

US producers have cut the number of active rigs drilling for gas by more than 50% since September 2008, but production has continued to grow, rising by more than 5% y/y in May.

According to the analysts, demand is unlikely to rebound significantly any time soon, as they expect the economic recovery in the US to be weak and protracted.

Nevertheless, some additional demand for natural gas is likely to come from product substitution from oil into gas, which should help increase gas prices relative to oil.

According to the British analyst, today significant divergence is recorded in oil and gas prices.

"Despite oil prices rise, gas prices fall. This divergence is unusual," Lord said.

"With gas prices so low relative to oil, we would not be surprised to see further substitution going forward. Even if oil prices fall back to our long-term forecast of $50/bl, we would still expect natural gas prices to rise toward $5/MBtu," the analysts said. 

According to the forecasts of the U.S. Energy Information Administration (EIA), the average monthly spot price for gas at the Henry Hub gas distribution hub in the United States will, by the end of the year, remain below $140 per thousand cubic meters.

EIA projects that in 2010 the average price for gas will rise to $191.8 per thousand cubic meters from $137.2 in 2009.

Demand for natural gas in the United States will decline by 2.6 percent in 2009 and rise by 0.5 percent in 2010.

According to the forecasts by U.S. JPMorgan Bank, the average price for gas in 2009 will amount to $154.4 per thousand cubic meters.

In 2010, the average price for gas in the U.S. will grow to $218.3 per thousand cubic meters, the Bank reported.

According to forecasts of Oil Daily, the average futures price for gas in the U.S. in autumn will be $115.06 per thousand cubic meters.

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