Fitch: Natural Gas Prices Likely to Be Range Bound

Natural gas prices are likely to stay in a range between $3-$4.50 per thousand cubic feet (mcf) during the next few years, according to Fitch Ratings. We expect prices will remain volatile due to weather impacts but should continue to be range bound over the next several years due to the substantial amount of oversupply that continues to affect the market and limited visibility on new demand to soak up that supply. Fitch believes power demand from coal/gas switching will provide a floor near $3.00 and producer response will provide a ceiling near $4.50. For 2014, we are modeling Henry Hub to average $4.00 per thousand cubic feet (mcf) in our base case and a long-term base case price of $4.50/mcf. Inventories are back in line with pre-2012 historical averages, but production is still at an all-time high and prices remain under pressure below $4.00. Increasing production of associated gas from liquids-rich fields in North America have more than offset lower rig counts for dry gas basins, and ethane rejection should continue to have a negative impact on prices. We expect some near-term incremental demand response, but major demand additions from coal and nuclear power plant retirements, LNG export, and new chemical plants are not due to be completed until 2016-2018. For more information on the energy space, please see our report, "Investor FAQs: Recent Questions on the E&P, Refining, and Drilling and Services Sectors," available on our website www.fitchratings.com. Additional information is available on www.fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.