Will bearish gas market come back this year?

By Don Stowers
The North American gas market is suffering from oversupply and waning demand that have combined to keep natural gas prices low. Yet, despite this, there are several indications that prices may rally, although there is no consensus on this.

Crude oil prices have been hovering around $70 for some time, and at least one senior analyst, Darin Newsom with DTN, a market information service out of Omaha, Neb., says that oil may hit $90 before year-end.

Newsome added that even though oil has the potential to rise another $20, supply and demand fundamentals remain weak.

The EIA recently reported record-high gas storage. That, combined with robust production mainly from unconventional resource plays, will continue to depress the price of natural gas, the agency said.

In its August short-term energy outlook, the EIA projected a full-year average price of $3.92/MMBtu – a full 30 cents less than its previous forecast.

However, as the economy bounces back and the supply-and-demand dynamic starts to balance, the EIA expects the Henry Hub price to rise to an average of $5.48/Mcf next year.

The EIA said it expects storage inventories to set a record by the end of the injection season, reaching 3.8 tcf by the end of October, topping the record set in 2007 by 235 bcf.

Canada’s National Energy Board attributes current low gas prices to an expanded US natural gas pipeline network, higher LNG imports, and sluggish gas demand. The NEB says the low prices have put pressure on drilling activity since late last year, with Canadian drilling down about 60% and US activity down roughly 50%.

The NEB said it expects gas prices to hold at or below the $4/MMBtu level for the next few weeks at least.

What are your thoughts on natural gas prices and when you think the market will improve?