Analysts predict further drop in natural gas prices, exports

CALGARY - Natural gas prices could plunge to $2 per gigajoule by the fall as volumes get backed up into Alberta on rising U.S. production and stable demand, say analysts.

The sombre expectation would lead to companies shutting in volumes rather than producing at a loss as incremental supply from the United States pushes Canadian volumes back into Alberta.

"The million dollar question is what is the ultimate productivity of emerging and key resource and shale gas plays in North America," said Jeff Fetterly with CIBC World Markets. "And from a productivity standpoint, at what point do we reach the threshold where the decline in dry gas activity more than offsets the increase we're seeing in well productivity in North America."

Fetterly expects 2011 natural gas prices to average $4.75 US in New York, and $4.15 per gigajoule in Alberta.

The March natural gas contract expired Thursday at $3.793 US per million British thermal units in New York.

Natural gas exports to the U.S. fell to an 11-year low in 2010, along with the lowest average price - $4.29 per gigajoule - seen in a decade, according to National Energy Board data.

Exports during January and February of this year dropped to around seven billion cubic feet per day, and the trend is expected to continue into the future as new pipelines in the U.S. Rockies and east coast open basins to high demand markets, said Rick Margolin, analyst with Denver, CO-based Bentek Energy.

"All of those factors are sort of colluding to deny Canadian gas shares of the American market," Margolin said. "Unfortunately, we don't see that slowing down."

Significant production declines in the U.S. and new demand sources coming on board will be needed to reverse the slide, he said.

"We see hints and glimmers of that right now, but nothing to an appreciable extent that is going to forestall this decline in exports to the U.S. anytime soon," Margolin said.

Over the longer term, shale gas production from the Horn River play in British Columbia and Montney in Alberta could cancel out declines from conventional sources but not for a long while, said Fetterly.

"The one light at the end of the tunnel from a Canadian gas perspective is liquefied natural gas," he said.

Apache Corp. and EOG Resources have partnered to open an LNG terminal in Kitimat, B.C., with another larger facility also being rumoured for the Canadian west Coast, Fetterly said.

(Source: http://www.calgaryherald.com/business/Analysts+predict+further+drop+natural+prices+exports/4380174/story.html?cid=megadrop_story)