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Why Natural Gas Will Stay Cheap in 2013

Why Natural Gas Will Stay Cheap in 2013
Photograph by Simon Dawson/Bloomberg

Six weeks ago, natural gas bulls were riding high. By Thanksgiving, prices had more than doubled since hitting a decade low of $1.90 per million BTUs in April. Heading into what was supposed to be a cold winter for the U.S.—at least compared with last year—the consensus view was that natural gas prices would be higher in 2013, since about half of all U.S. households heat their homes with natural gas. By the end of December, the median forecast of 22 analysts surveyed by Bloomberg was that natural gas would average $3.75 for 2013.

A few weeks of warm weather later, and a lot of those forecasts look way too optimistic. Prices have fallen more than 20 percent since peaking at $3.90 per million BTUs in late November. With the National Weather Service predicting above-normal temperatures over the next 10 days for the eastern third of the U.S., that downward pressure is likely to continue. “We’re going to see a lot of guys coming in and changing their forecasts,” says Laurent Key, an energy analyst at Societe Generale in New York. Key expects prices to bottom out around an average of $3.16 in the second quarter before climbing.