Goldman Cuts U.S. Gas Price Forecast 23% on Output

By Dinakar Sethuraman

Aug. 18 (Bloomberg) -- Goldman Sachs Group Inc. cut its U.S. natural gas price forecast for the Northern Hemisphere winter by 23 percent because of higher-than-expected output and lower demand from power plants.

Gas futures, which have fallen 42 percent since July 3, may trade at $10.30 per million British thermal units this winter, down from a July forecast of $13.40, analysts Samantha Dart and Jeffrey Currie said in a report dated Aug. 15. The U.S. investment bank reduced the average price estimate for September and October to $9.25 from $13.

``The strong U.S. natural gas supply growth suggests that incremental LNG imports into the United States will no longer be necessary for U.S. inventories to reach comfortable levels,'' the analysts said.

Domestic gas output is expected to increase by 8 percent this year, the Energy Department said in its monthly Short-Term Energy Outlook released on Aug. 12. Much of this new supply is 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.

Goldman raised its average U.S. gas production forecast by 720 million cubic feet a day because of higher shale output. The U.S. produced 8 percent more of the cleaner-burning fuel to an average 55.9 billion cubic feet a day this year, the report said, citing the U.S. Energy Department.

Prices `Oversold'

``Higher U.S. production has led us to lower our price forecast,'' the analysts said. ``However, current U.S. natural gas prices are oversold as they stand below estimated marginal costs of production.''

Goldman lowered its average April-August 2009 gas price forecast to $9.10 per million Btu from $10.30 estimated earlier, the report said.

``Part of the softness in the U.S. natural gas balance may be explained by lower demand for power generation, likely due to weakness in U.S. economic activity,'' the report said.

LNG suppliers will have little or no incentive to send spot cargoes to the U.S. as opposed to Asia or Europe as U.S. gas prices remain significantly below global levels in the coming months, the report said. Japan paid an average $14.10 per million Btu for spot supplies of LNG in June, according to the Ministry of Finance.

Goldman lowered the U.S. LNG import forecast for the Aug.- March 2009 period by 390 million cubic feet a day to an average 1.1 billion.

Natural gas for September delivery fell 1.9 percent last week and was trading at $7.910 per million Btu on the New York Mercantile Exchange at 11:52 a.m. in Singapore. Futures have dropped 42 percent since closing at $13.577 on July 3, a 30-month high, and are below their 200-day moving average of $9.597.

LNG is natural gas that has been chilled to liquid form, reducing it to one-six-hundredth of its original volume, for transportation by ship to destinations not connected by pipeline.

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