Dow Jones Natural Gas - Prices Fall On Growing Concern About Gas Glut

DJ Natural-Gas Prices Fall on Growing Concern About Gas Glut



  By Timothy Puko


  Natural-gas prices were inching downward on Tuesday, as concern grows about the chances for the gas glut to hit
unmanageable levels later this year.

  Natural gas for February delivery was down 0.8 cent, or 0.3%, at $2.874 a million British thermal units on the New
York Mercantile Exchange. Prices are down nearly 10% in the last week of trading.

  Citigroup Inc. cut its price forecast for the next two years by nearly 30%, according to a note to clients. It
expects prices to average $2.70/mmBtu in 2015, down from $3, and it cut expectations for 2016 to $3/mmBtu, down from
$4.20.

  "Phenomenal" production growth was the biggest driver for the change, analysts on the Citi Research team said.
Production grew by about 3 billion cubic feet a day in the last four months of 2014, leading to December production to
outpace even the most optimistic expectations by 1 bcf a day.

  That creates a scenario where gas stockpiles would surpass the industry's capacity for storage by October. To avoid
that, gas producers have to keep cutting prices to entice power generators to switch to gas fuel instead of coal. But
coal prices have kept falling, too, with some Appalachian futures now lower than $50 a ton and Illinois basin prices
lower than $40, according to SNL.

  "It looks like the worst-case scenario," said Teri Viswanath, a strategist at BNP Paribas SA in New York. She
compared it to 2012, when a similar scenario pushed natural gas prices below $2/mmBtu.

  The record production, combined with tepid heating demand during an unseasonably warm winter, has already caused
prices to drop by more than 35% since Nov. 20. Half of U.S. homes use natural gas for heating, and that demand usually
sends prices into their peak season at this time of year.

  The market is oversupplied by about 1 bcf a day, a trend that is unlikely to reverse quickly, according to Citi. It
predicts it will take a "war of attrition" among producers to rebalance the market.

  Physical gas for next-day delivery at the Henry Hub in Louisiana last traded at $2.98/mmBtu, compared with Monday's
range of $3.10-$3.24. Cash prices at the Transco Z6 hub in New York last traded at $15.00/mmBtu, compared with Monday's
range of $9.00 to $13.50.


  Write to Timothy Puko at tim.puko@wsj.com


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  (END) Dow Jones Newswires

  January 06, 2015 10:05 ET (15:05 GMT)

  Copyright (c) 2015 Dow Jones & Company, Inc.

010615 15:05 -- GMT
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