Barclays Capital Lowers 2011 U.S. Natural Gas Forecast by 3.9% to $4.40

Barclays Plc cut its forecast for U.S. natural gas prices for the three years through 2012 because of rising supplies and weaker demand.

Prices may average $3.94 per million British thermal units next year, down from an earlier estimate of $4.10, James Crandell, a New York-based analyst at Barclays Capital, the lender’s investment-banking unit, wrote in a report yesterday. Barclays also reduced its forecasts for this year and 2012.

“Aggregate demand is likely to drop in 2011, largely owing to an assumed return to normal weather,” Crandell said. “The contrast of growing supply and falling demand should lead to inevitable downward price pressure.”

A hotter summer in the Northern Hemisphere this year reduced inventories of gas in the U.S., sending futures to more than $5 per million Btu in June. Natural gas for November delivery rose 0.9 percent to $3.543 per million Btu on the New York Mercantile Exchange at 6 p.m. Singapore time.

Rising gas production in the U.S., which has depressed prices amid lower demand, will average 61.29 billion cubic feet a day this year, according to the Energy Department, the most since 1973. Output will be 2.2 percent higher than last year.

Gas prices may average $4.40 per million Btu this year from an earlier estimate of $4.52, Crandell said. The bank reduced its 2012 projection to $4.50 from $5.25.

Goldman Sachs Group Inc. said Oct. 14 that U.S. gas futures may rise as factories boost production, projecting a 12-month price for the fuel at $5.75 per million Btu. Prices may climb to as much as $6.50 per million Btu “in a year or two,”David Greely, chief commodities strategist and head of energy research for Goldman Sachs in New York, said in June.

Record Storage

Drilling may decline, with the onshore gas-rig count dropping to 900 by the end of next year from 966 currently, Barclays said.

“We expect only a moderate pullback of drilling in 2011,” Crandell said. “This would yield continued supply growth and leave 2011 more oversupplied than 2010, and carry supply momentum into 2012 as well.”

The outlook for gas prices was cut partly because of inventories, he said. Storage is expected to reach 2 billion cubic feet a day at the end of this winter, and rise to a record 4 trillion cubic feet at the end of October 2011, the bank said.

Gas in storage as of Oct. 8 totaled 3.6 trillion cubic feet, 7.4 percent above the five-year average and 3.2 percent below year-earlier levels, according to the U.S. Energy Department.

Inventories will peak at 3.726 trillion cubic feet by the end of this month, the second-highest level for the start of a heating season, according to the department. Stockpiles climbed to a record 3.837 trillion cubic feet in November.

Industrial demand for gas, which may grow 1.3 billion cubic feet a day this year, will increase by an additional 400 million next year even as consumption by factories is limited by a 2.8 percent U.S. growth outlook, Barclays said. Power usage may drop next year after this year’s hot summer contributed to more than half of the 4.5 percent increase in electricity consumption, it said.

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

To contact the editors responsible for this story: Clyde Russell at crussell7@bloomberg.net; Amit Prakash at aprakash1@bloomberg.net

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