POLL-U.S. natgas prices seen up 32 pct in '13 as economy lifts demand
* Stronger economic growth, flat production back gains
* Prices seen climbing another 16 percent in 2014
NEW YORK, Feb 8 (Reuters) - U.S. natural gas prices should jump 32 percent this year compared with 2012 as stronger industrial demand and a potential dip in production tighten fundamentals, a Reuters poll found. The latest quarterly poll showed analysts to be slightly less bullish than in November due to a relatively warm start to the winter heating season, but overall strong demand from utilities was seen keeping a floor under prices. The poll put the consensus forecast for the average spot price this year at Henry Hub, the benchmark U.S. supply point in Louisiana, at $3.66 per million British thermal units, up 32 percent from the $2.77 realized average in 2012 but down 3.2 percent from the previous poll in November. "We expect overall demand growth this year against flat supply. That's a recipe for a tighter market later this year and next year," said Martin King, vice president at FirstEnergy Capital Corp in Calgary. Of the 29 participants in the poll, there were 13 downward revisions, four upward revisions and seven unchanged. Five did not participate in the previous poll. Price estimates for 2013 ranged from a low of $3.25 to a high of $4.50. Gas demand was seen improving further in 2014 as stricter rules on emissions force more inefficient coal-fired plants to shut. That should help drive prices up another 16 percent to $4.24, according to the Reuters poll. Prices in 2015 were expected to gain another 9 percent to $4.63 as economic activity continues to ramp up and more utilities turn to cleaner-burning gas instead of coal to generate baseload power.
BRIGHTER PICTURE FOR DEMAND Coal-to-gas switching was a key factor in tightening the market last year, as gas prices slid to 10-year lows below $2 and sparked a flood of buying by utilities anxious to burn cheap gas rather than coal to generate power. The sharp price drop drove gas-fired power demand up nearly 25 percent in 2012. Gas grabbed a 30 percent share of total U.S. power generation, up 5 points from 2011, while coal's share slid to 38 percent, from 42 percent in 2011. While switching was expected to taper off in 2013 - gas prices should be much higher this year - analysts agree that it will continue to play a key role in balancing the market. With winter turning out milder than some had predicted, analysts agree that prices will have to stay low enough to support at least some switching. Without that added demand, more gas could end up in inventory and revive worries about storage testing capacity limits later in the stock-building season. But analysts say at least some of the switch away from coal is permanent. Stricter rules on emissions make investment in inefficient coal plants a waste of capital, and most new baseload generation planned in coming years will be gas. "Gas is increasingly being used for baseload generation and not just peak load," said Earl Sweet at BMO Capital Markets. Industrial demand is also expected to ramp up this year, as an improving economy and relatively cheap gas prompt petrochemical companies, fertilizer manufacturers and others to increase their use of gas. "Industrial consumers are making a comeback, and that's important because they're not weather-sensitive load, they're 24/7 and that's increasing demand," said Teri Viswanath at BNP Paribas in New York. Residential and commercial use of gas for space heating is expected to grow in 2013 after last year's mild winter. The Energy Information Administration expects U.S. gas consumption to climb 0.6 percent this year, as gains in residential, commercial and industrial use offset a decline in electric power demand while higher gas prices slow switching. Despite the tighter balance this year, most analysts see only limited potential for price gains in the near term, noting a strong rally could dampen utility demand by making gas less competitive with coal and encourage more supply.
SUPPLIES STILL HIGH Gas prices have been pressured over the last few years as record-high gas production, primarily from a boom in shale output, flooded the market with new supplies. Drilling for natural gas fell for most of last year, and while output has shown no strong sign of slowing yet, some say a production decline could set in during the second half of 2013. Utilities typically stockpile natural gas from April through October, then withdraw stored supplies from November through March to help meet peak winter heating needs. But an unimpressive heating season this year is likely to leave storage at elevated levels by April. Last year's record-high finish of 2.48 trillion cubic feet stirred worries that storage caverns would fill early, which helped drive gas prices to decade lows last spring. Winter withdrawals so far are running about 7 percent below normal. While inventories should end March well under last winter's record highs, it will still take a cold finish to trim stocks to more comfortable levels below 2 tcf. "Storage should start the (stock-building season) a lot lower than last year, but if the rest of winter warms up, then prices will have to head south," said Steve Thumb, principal at Energy Ventures Analysis in Virginia.
(Additional reporting by Eileen Houlihan; Editing by Dale Hudson)