DJ Natural Gas Declines on Growing Supply
By Timothy Puko
Natural gas prices gave back all the prior day's gains on expectations that supplies are rising and will keep
overwhelming demand.
The front-month February contract settled down 11.5 cents, or 3.9%, at $2.866 a million British thermal units on the
New York Mercantile Exchange. The more actively traded March contract settled down 9.3 cents, or 3.2%, at $2.842/mmBtu.
The February contract expired at close.
Analysts and brokers are expecting that gas inventories last week shrunk by a third less than they usually do for
this time of year. The U.S. Energy Information Administration has its weekly storage update scheduled for Thursday at
10:30 a.m., and it is likely to report that storage levels fell by 111 billion cubic feet during the week ended Jan.
23, according to the average forecast of 20 analysts and traders surveyed by The Wall Street Journal. The average draw
on storage for that week of the year is 168 bcf.
A 111-bcf addition would put stockpiles at 2.5 trillion cubic feet, 14% above levels from a year ago and 3.6% below
the five-year average for the same week.
"There is ample...gas in inventory to meet the demand of the remaining winter season even if it is colder than
normal," Dominick Chirichella, analyst at the Energy Management Institute, said in a note to clients.
Half of U.S. homes use natural gas for heat, making winter cold typically the biggest driver for demand. But prices
have plummeted 36% since November because record production has been enough to easily cover demand, even in the coldest
weeks of the year.
Citing stronger-than-expected supply, UBS Group AG joined BNP Paribas, Citigroup and Societe Generale in cutting its
forecast for natural gas prices. UBS is cutting its estimates between 12% and 20% for the next three years. Its
forecast for 2015 fell to $3.25/mmBtu from $3.75.
The annualized production growth rate is likely to increase to 3.4 bcf a day between 2014 to 2019, up from 2.1 bcf a
day in the last five-year period. Oversupply is already at 2.5 bcf a day, the bank said. UBS still believes that
closing coal-fired power plants, opening export terminals and building new petrochemical plants will start driving up
long-term demand, but producers can meet it at prices around $4.50/mmBtu, not the prices above $5 the bank had once
projected.
Production is already edging higher after concerns it might be wavering earlier this month, according to Citigroup
Inc. Producers are doing better in several gas-rich shale formations, especially the Marcellus, its analyst Anthony
Yuen said in a note to clients Wednesday. They are quickly recovering from cold weather that can choke off supply and
they keep making technological advancements that allow each well to produce more, he said.
Write to Timothy Puko at tim.puko@wsj.com
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(END) Dow Jones Newswires
January 28, 2015 15:36 ET (20:36 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
012815 20:36 -- GMT
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