Goldman Sachs Cuts U.S., U.K. Gas-Price Forecasts as Oil Slumps

By Dinakar Sethuraman

Nov. 24 (Bloomberg) -- Goldman Sachs Group Inc. cut its forecasts for natural-gas prices in the U.S. this winter by 6 percent and in the U.K. by 9.5 percent after lowering estimates for oil.

U.S. gas futures may trade at an average $6.20 per million British thermal units this winter, down from $6.60 estimated in a Nov. 14 report, analysts Samantha Dart and Jeffrey Currie said in a forecast dated Nov. 21. Goldman reduced its U.K. average gas- price estimate to $10.40 per million Btu from $11.50.

Crude-oil prices in New York have slumped 66 percent from a record $147.27 a barrel on July 11 as a global financial crisis sapped demand for energy. Goldman reduced its winter estimate for fuel oil, a substitute for gas in power plants and manufacturing, by about 29 percent to $6.25 per million Btu in a report Nov. 19.

``There is a potential physical link between natural gas and the oil complex in the winter in the event that colder-than- normal weather necessitates fuel switching from natural gas to oil,'' the analysts said. ``With lower fuel-oil price expectations - now expected to average $6.25 per million Btu over the winter - there is little reason to believe that natural gas prices would be sustained above these levels in the winter.''

Goldman reduced its forecast for the average price of New York-traded crude oil in 2009 to $80 a barrel from $86 in a report on Nov. 19.

The bank does not expect the link between fuel-oil prices and gas to persist in 2009 because a surplus of gas production in the U.S. will reduce the need to substitute the cleaner-burning fuel with oil and keep gas prices ``well below'' oil prices, the report said.

``Excess natural-gas supplies during the 2009 summer will likely necessitate fuel substitution away from coal and into natural gas, in order to increase demand and absorb the excess,'' the report said.

Natural-gas prices in the U.S. in summer 2009 are estimated at $6 per million Btu and in the 2009/10 winter at $7, according to the report.

Goldman had estimated U.S. 2008 winter gas prices at $7.60 per million Btu in a report on Oct. 12, when crude traded in New York at $81.19 a barrel, according to data compiled by Bloomberg.

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