Analyst: Rise in natural gas prices can't last

2011-6-2

A recent rise in natural gas prices is unlikely to last, as U.S. nuclear capacity returns in coming weeks and gas demand consequently eases, a Raymond James analyst said on Tuesday.

The analyst, J. Marshall Adkins, wrote in a research note that a surge in springtime nuclear plant refueling and maintenance "may be giving the natural gas market a temporary `sugar high.'"

In recent weeks, natural gas prices have climbed to around $4.50 per 1,000 cubic feet, up from about $4 per 1,000 cubic feet in mid-March.

The number of plants going offline this spring has been much larger than usual, temporarily reducing the amount of electricity produced by nuclear plants, and boosting demand for other electricity sources, particularly gas.

Nuclear safety fears triggered by the recent disaster at a Japanese plant also led to increased inspections and downtime for U.S. plants that already had been offline for refueling, Adkins said. Gas captured the bulk of that lost capacity, Adkins said.

He estimates that most of the offline nuclear capacity will be back on by July, wiping out tightness in gas supplies that has supported the recent price increase.

Adkins said that tightness "is set to unwind over the coming weeks as nuclear capacity returns." As a result, he said he remains "humbly in the bearish camp for this summer" concerning natural gas prices.

Adkins had maintained a bearish outlook due to his belief that growth in U.S. gas supplies would continue to overwhelm storage limits. He acknowledged Tuesday that prices most of this year have remained above his full-year forecast of $3.75 per 1,000 cubic feet.

On Tuesday, shares of natural gas drillers mostly rose, in line with broader markets. Chesapeake Energy Corp. gained 13 cents, or 0.4 percent, to $31.24; Devon Energy Corp. rose 15 cents, or 0.2 percent, to $83.49; Gastar Exploration Ltd. fell a penny to $3.40; EOG Resources added 20 cents, or 0.2 percent, to $108.35; and Southwestern Energy Co. fell 4 cents, or 0.1 percent, to $43.33.

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