Goldman Sachs Reduces 2013 Forecast for U.K. Gas Price by 19%

Gas prices at the U.K.’s National Balancing Point will drop this year to 59.7 pence a therm because of lower demand and discounts from pipeline gas suppliers, Goldman Sachs Group Inc. said.

The forecast is 14.1 pence, or 19 percent lower than Goldman’s previous projection, Samantha Dart, a London-based analysts for the firm, said in a report e-mailed today. U.K. NBP prices will rebound starting in 2014 to 66 pence as a stronger economy stokes demand for gas and production declines in northwest Europe, the analysts said.

“We had been expecting that substantial diversion of liquefied natural gas away from Europe would be enough to tighten European natural gas markets so that spot prices would need to rise to attract spot cargoes back,” Goldman Sachs said.

LNG diversions to Asia and South America in 2012 were driven by nuclear power outages and lower hydropower generation, Goldman said in a report dated Jan. 29. European gas demand last year remained weak, contributing to a balanced supply-demand picture, the analysts said.

Industrial and power-generation needs for gas declined along with weak European economic activity, the report said. Low coal prices relative to natural gas and increased renewables-generation capacity pulled down gas demand in northwest Europe to 8 billion cubic meters below Goldman Sach’s 2012 forecast, the analysts said.

Continued Weakness

Economic weakness in Europe will carry over into 2013, dragging down gas demand for power generation, the report said. This may lead to a wider spread of minus 14.4 pence for spot-to-oil indexed gas prices this year, with the U.K. NBP price forecast at 59.7 pence, compared with an oil-indexed proxy of 74.1 pence, the report said.

Goldman Sachs cut its forecast for northwest Europe’s gas demand this year to 302 billion cubic meters from its original projection of 321 billion cubic meters. The region’s gas needs may rise to 304 billion cubic meters in 2014, the report said.

“Going into 2014, we expect that continued decline in northwest European gas production and a pick-up in economic activity will tighten the market and motivate increased exports into the region,” the Goldman analysts said.

Pipeline gas could be more appealing compared with LNG because of discounts provided by pipeline suppliers to Europeans customers relative to the traditional oil-linked gas price formula, Goldman Sachs said.

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