• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing
  3. / Utilities

Natural Gas Prices to be Flat

Combined factors of the economy, weather, demand, drilling and inventories lead to a stable outlook.
By GLENN WILLIAMS Oct 07, 2011 | 01:00 PM EDT
Stocks quotes in this article: RJF, UBS, DB, SI, GE, AEP, AEE, PGN

It appears that next year's prices for natural gas will be flat, according to estimates provided by the Natural Gas Supply Association (NGSA). The estimates were published October 4, 2011, and provided to attendees of the United States Energy Association's (USEA) Annual Energy Supply Forum held in Washington, D.C.

NGSA collected and published third-party estimates for 2012 Henry Hub prices from six separate sources. Energy Ventures Analysis offered the lowest estimate at $3.73 per million British Thermal Units (MMBtu). Raymond James (RJF) estimated $4.25 per MMBtu, the U.S. Energy Information Administration (EIA) forecast $4.33 per MMBtu, Stephen Smith Energy Associates estimates $4.35 per MMBtu and UBS AG (UBS) estimates $4.90. Deutsche Bank AG (DB) offered the highest estimate at $5.00 per MMBtu. The median estimated price is $4.34, and the average estimated price is $4.43 per MMBtu. Current spot and future prices are approximately $3.49 per MMBtu and $3.52 per MMBtu, respectively.

According to NGSA's President and CEO, R. Skip Horvath, the association evaluated the combined impact of the economy, weather, customer demand, drilling activity and storage inventories to conclude a stable outlook. "NGSA expects the economy and the weather, two factors that most influence winter demand, to place subtle downward pressure on natural gas market prices this winter. At the same time, supply and storage data suggest a mix of moderate downward pressure and flat pressure on natural gas prices. This year, we see weather as the most influential factor. Of course, it's also the most difficult to predict."

For long-term weather outlooks, the NGSA relies on the U.S. Department of Commerce's National Oceanic and Atmospheric Administration (NOAA). Last winter was the coldest in a decade, and this winter NOAA anticipates a comparatively warmer season.

Adding to the upward pressure is new demand from the electric power sector. For the first time, Regional Transmission Operators and regulated utilities are dispatching natural gas power plants before coal-fired plants for economic and regulatory reasons. The economics are driven by new heat rates as some combined cycle gas turbines are reaching historic efficiencies.

Both Siemens AG (SI) and General Electric (GE) offer gas turbines that can reach, and have even exceeded, 60% efficiencies. At approximately 700 megawatts, these plants are large and costly. Some new gas turbines produce more power than some nuclear power plants and produce less greenhouse gases per megawatt-hour because they use fuel efficiently.

Older power plants, particularly old coal plants, are relatively inefficient, and many have difficulty reaching 30% efficiency. These older plants tend to create more pollution because they burn more fuel but produce less energy. Older coal plants are being bumped out of the economic dispatch order when newer combined cycle gas turbines enter the market.

It is understandable that utilities would opt to retire these old coal plants rather than update their emission controls. The old units have been fully depreciated and, if updated, they could pose a challenge to profitability. If a utility updates an old coal plant, it would likely make their plants less efficient and less economical.

As a result, NGSA reported that they saw a doubling of fuel switching last winter. According to Horvath, "Not only has coal-to-gas switching continued for an unprecedented three straight years, but published New York Mercantile Exchange (NYMEX) prices suggest that it will continue through 2014."

The fundamentals support additional consumption of natural gas by regulated utilities. American Electric Power (AEP) said that it plans to retire about 6,000 megawatts of coal-fueled power generation. Ameren (AEE) plans to retire 520 megawatts in Illinois. Progress Energy (PGN) announced its plan to shut down 11 coal-burning units representing about 1,500 MW. Also, the Tennessee Valley Authority Commission announced that it would retire 18 of its most expensive coal units. And the list goes on.

This is just the beginning. According to a report published by Sanford C. Bernstein & Co. LLC "...concluded that the United States may be in line to retire 228,000 MW of capacity in the next 10 years." These retirements of aging assets is normal. Nevertheless, a lot of capacity is evaporating, and the only practical replacements are natural gas and importing power from other regions.

While the long-term trend looks strong for natural gas, the short-term utility gains are offset by declines in the other sectors, particularly heating. Overall, prices and volumes appear to be unchanged for the next year or two.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Glenn Williams had no position in any of the stocks .

TAGS: Commodities | Markets | Energy | Investing | Utilities

More from Utilities

These 3 High-Dividend Canadian Stocks Are Worth a Look

Bob Ciura
Jun 11, 2022 12:00 PM EDT

We like Canadian stocks for their relatively low valuations compared to US peers.

Constellation Energy Could Power 20% Higher From Here

Bruce Kamich
May 20, 2022 7:34 AM EDT

Shares of the clean energy power generator have rallied since going public in January.

American Electric Power Could Correct Lower

Bruce Kamich
May 10, 2022 8:07 AM EDT

Let's see what the charts and indicators look like.

Tap Into a Steady Dividend Stream With These 3 Water Stocks

Bob Ciura
May 5, 2022 1:00 PM EDT

Here we'll dive into Pentair, Consolidated Water, and American Water Works -- all names buoyed by the world's increasing thirst for more water.

Do You Know the Way to the Bottom in SJW?

Bruce Kamich
May 2, 2022 11:20 AM EDT

The shares of this utility stock have turned lower from a choppy sideways pattern.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 08:55 AM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    The 10 personality traits of successful traders an...
  • 12:08 PM EDT STEPHEN GUILFOYLE

    Stocks Under $10

    As a Portfolio Name Agrees to a Merger, Here's Our...
  • 10:44 AM EDT PAUL PRICE

    My Very Best Pick for the Next 12 Months

    American Woodmark . It rarely gets better than th...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2022 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login