Goldman Cuts 2009 U.S. Gas Price Forecast By 20% (Update1)

By Dinakar Sethuraman

Sept. 5 (Bloomberg) -- Goldman Sachs Group Inc. cut its U.S. natural gas price forecast for 2009 by 20 percent because of lower demand from power plants and cooler summer weather.

Gas futures, which have fallen 46 percent since early July, may trade at $9.00 per million British thermal units in 2009, down from a previous forecast of $11.25, analysts Brian Singer and Arjun Murti said in a report today. The U.S. investment bank reduced the average price estimate for 2010 to $8.25 from $9.50.

``A return to sustained double-digit gas prices also appears less likely without prolonged hurricane disruptions and/or cold winter weather,'' the analysts said. ``We remain concerned about rising storage levels in 2010 and 2011.''

U.S. domestic gas output is expected to increase by 8 percent this year, the Energy Department said in its monthly Short-Term Energy Outlook released on Aug. 12. Much of this new supply is from fields in Texas, Wyoming and Louisiana, where companies are finding new sources of the fuel trapped in shale formations, a type of sedimentary rock.

Inventories gained 90 billion cubic feet in the week ended Aug. 29 to 2.847 trillion cubic feet, the Energy Department report showed. The average gain for this time of year is 59 billion. Utilities and storage companies add to supplies in the summer and fall to meet needs in the winter, when demand peaks.

``Our bullish view on stocks has proven wrong over past two months due to greater Street supply fears and lower-than- expected demand,'' the analysts said. ``Over the past two months, the Street has become much more concerned about production growth leading to oversupply of natural gas.''

Gas Production

Natural gas production in the U.S. may grow 6.1 percent this year because of higher shale output, Goldman said. Of an estimated 2.7 billion cubic feet a day of incremental gas production after royalties this year, about 70 percent comes from unconventional gas sources like shale. Production may rise less than expected in 2009 because shale may add less gas than expected while conventional output may fall faster than expected.

Global gas prices may stay strong, limiting LNG imports to the U.S., the report said. New LNG producing lines in 2009 may boost supplies to Europe and Asia as they continue to pay more than the U.S. for the cleaner-burning fuel. For instance European gas futures are 92 percent more than the U.S. for 2009.