POLL-U.S. natgas forecasts inch up for 2013, pared for 2014
* Prices up 40 pct from 2012's depressed levels
* High supplies temper price expectations
* Prices seen rising another 8 percent in 2014
NEW YORK, July 31 (Reuters) - U.S. natural gas prices are expected to creep higher for the remainder of this year and again in 2014 as demand continues to improve after extremely low prices last year have attracted more users, a Reuters poll of analysts showed. Prices have bounced back from last year's decade lows as chilly late winter weather increased heating needs and whittled down record inventories to below average levels by the end of March. Price forecasts have cooled somewhat due to falling utility demand and strong production, primarily from booming shale output. "Most analysts this year have been surprised by supply. Despite the reduction in drilling rigs, production hasn't fallen off," said Teri Viswanath, analyst at BNP Paribas in New York. The Reuters quarterly poll put the consensus forecast for spot prices this year at Henry Hub, the benchmark U.S. supply point in Louisiana, at an average of $3.87 per million British thermal units. That would be up slightly from the April poll estimate of $3.84 and up about 40 percent from the 13-year low average of $2.77 posted in 2012. For the first half of this year, Henry Hub prices have averaged $3.75, up 55 percent from the $2.41 average at the same time last year, according to Reuters data. In 2014, tighter rules on emissions should favor gas, a less polluting fuel, and force more coal plants into retirement. That should boost baseload gas-fired power demand and help drive prices up about 8 percent to $4.20. Estimates for 2014 were down about 1 percent from the April poll average. Prices in 2015 were expected to gain another 7 percent to $4.48 as economic activity picks up and utilities continue to shift to cleaner burning gas instead of coal to generate power. Of the 27 participants in the poll, there were 13 upward revisions for 2013, eight downward revisions and four unchanged. Two did not participate in the previous poll. Price estimates for 2013 ranged from a low of $3.68 to a high of $4.15.
SUPPLIES STILL WEIGH Gas prices have largely been on the defensive since posting a 21-month high above $4.40 in late April, as a mild start to summer and record gas production curbed concerns about supply. While the Baker Hughes gas drilling rig count remains just above an 18-year low, the Energy Information Administration (EIA) still expects gas output in 2013 to hit a record high for a third straight year. The associated gas produced from shale oil and shale gas liquids wells has kept dry gas flowing at a brisk rate, and new investment in gas pipelines and processing plants should pump even more supply into the market. "There are still infrastructure expansions set for 2014. Supply should remain stable," BNP Paribas' Viswanath said. Comfortable inventories have also lessened concerns about supplies this winter. Utilities typically stockpile gas from April through October, then withdraw stored supplies from November through March to help meet heating demand. If weekly builds into early November match the five-year average pace, storage will begin next heating season at 3.730 trillion cubic feet (tcf), 5 percent below last year's record high of 3.929 tcf but only about 1 percent below average. Stocks this year should be more than adequate to help meet even the coldest winter demand.
UTILITIES MOVE BACK TO COAL Gas and coal compete for a share of electricity generation, and unlike last year when gas had a clear price advantage that triggered record gas-fired utility demand, coal has been the fuel of choice this year for producing power. Higher gas prices this year steered many utilities back to coal, and gas-fired utility demand is estimated by EIA to be down 10 percent, or 2.6 bcf per day from 2012's record levels. In addition, air conditioning demand is lagging as this summer is cooler than last year's record heat. Total gas-weighted cooling degree days since May 1 are running about 7.5 percent above the 30-year norm but nearly 9 percent below last summer's record pace, according to data from Thomson Reuters North American natural gas research team. Even if air conditioning ramps up for the rest of summer, some analysts think gas prices may still have to get cheaper in order to prompt coal-burning power plants to switch. Down the road, stricter environmental rules will make coal burning increasingly expensive and prompt more utilities to turn to gas to produce electricity. "With the Clean Air Act in place, more and more coal is being shut down, and that will start to accelerate next year. The likely replacement for that will be gas," said Earl Sweet, managing director at BMO Capital Markets in Toronto. Since 2009, U.S. power companies have shut more than 15,000 megawatts of inefficient coal plants and have announced plans to retire an additional 35,000 megawatts in the next decade. While U.S. gas prices are up from last year's lows, they are still cheap when compared to global supplies. That should continue to give domestic manufacturers a competitive edge. "People may be underestimating the industrial recovery in the United States. By the time we get to next year, low gas prices are going to be stimulating manufacturing," Sweet said. Some analysts expect industrial demand to add an extra 1 bcf per day to estimated consumption of about 70 bcfd by 2014. Pipeline exports to Mexico are also on the rise and should help tighten the overall supply-demand balance. But despite a market looking for better balance, many analysts see only limited potential for price gains near term. "I wouldn't be surprised if prices are flat next year, but everything changes in 2015 when we'll see a lot more coal plant retirements and more reliance on gas to generate electricity," said Chris Kostas, analyst at Energy Security Analysis Inc.
(Reporting by Joe Silha; Editing by Bob Burgdorfer)