Oct. 7 (Bloomberg) -- Goldman Sachs Group Inc. said that average U.S. natural gas prices in 2009 may trade at a 44 percent discount to those in the U.K. as higher domestic output ``decouples'' the U.S. market from the rest of the world.

U.S. gas futures, which have fallen 50 percent since early July, may trade at $8.30 per million British thermal units in 2009 compared with $14.80 in the U.K., analysts Samantha Dart and Jeffrey Currie said in a report e-mailed today. The investment bank reduced the U.S. average price estimate for 2009 by 70 cents per million Btu from an earlier report on Sept. 5.

``The higher-than-expected U.S. natural gas production will likely prove persistent prolonging the winter disconnect that we expect between U.S. and international natural gas prices through, and possibly beyond, 2009,'' the report said.

U.S. domestic gas output rose by 8 percent this year because of new supply 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. Imports of liquefied natural gas to the U.S. declined this year as Asia and Europe are paying more than 50 percent above the U.S. for the fuel.

Goldman expects 2008-09 U.S. winter gas prices to average $9.50 per million Btu, down from a previous forecast of $10.30, the report said. U.K. gas prices in summer 2009 may trade at $13.50 while the 2009-10 winter price forecast at the benchmark U.K. National Balancing Point is $17.20, the report said.

``Lowering our U.S. winter price forecast level comes on the back of the expected excess supply in summer 2009 and the likely downward move in summer natural gas prices to parity with coal,'' the report said.

Declining Output

Prices of gas in the U.K. are higher because declining domestic output is forcing the country to import gas through pipelines and in liquefied form, the report said.

U.S. inventories may be 3,361 billion cubic feet at the start of winter on Nov. 1 and end the winter at 1,417 billion, the report said. Goldman slashed the inventory levels next year from an earlier forecast of 1,553 billion cubic feet because hurricanes including Gustav and Ike removed a total of 231 billion of output from the market.

The surplus in U.S. gas output has emerged from sources such as shale, which account for about 17 percent of the total estimated output of 50.5 billion cubic feet a day, net of royalties, Goldman said.

The surplus may shrink if gas, at $7.80 per million Btu, displaces coal for power generation, or if lower gas prices prompt producers to stop drilling, the report said.

The marginal cost of production for high-cost suppliers is $9 per million Btu and $6.50 for low-cost drillers, the report said. Gas traded at $6.92 in New York at 4.12 P.M.

``If prices move below $6.50 we believe that even low-cost producers would have the incentive to lower their investments and curtail drilling, which could not only affect current levels of production, but also reduce production growth from several unconventional gas plays,'' the report said.

To contact the reporter on this story: Dinakar Sethuraman in Singapore at dinakar@bloomberg.net.

Last Updated: October 7, 2008 04:48 EDT