High gas prices may remain

www.casperstartribune.net By DUSTIN BLEIZEFFER Star-Tribune energy reporter Thursday, February 27, 2003

GILLETTE -- Natural gas producers are enjoying the high side of the ebb-and-tide pricing market now nearing the $4.50 per thousand cubic feet (mcf) of gas mark at Wyoming trading hubs, according to Enerfax Daily. Cold winter weather in the eastern portion of the U.S. has helped boost prices for all producing areas, including the Rockies -- an area that was slammed this past summer with prices that dipped to $1 per mcf and below. Such seasonal changes are expected in the natural gas pricing market. But in a telephone conference Monday about his company's pending merger with Ocean Energy, Inc., Devon Energy Corp. chairman, president and CEO Larry Nichols proclaimed natural gas prices could remain on the high side for a long time to come. "We have moved into a new era of gas prices," Nichols said. Speaking of natural gas pricing at Louisiana's Henry Hub, Nichols added, "The days of trading at $2 (per mcf) or less are gone forever. Because of the way storage is being depleted, we are going to see some of the highest gas prices in history." Stu Wagner, a natural gas market analyst with Petrie Parkman & Co. in Denver, said he agrees natural gas prices are not likely to dip to this past summer's lows, and there's many reasons to believe prices will remain strong for the rest of 2003. "We'd agree that the era of $2.50 gas is over. That is, at Henry Hub," Wagner said, noting that the Rockies still trails the rest of the nation's wholesale natural gas prices by about $2 per mcf. "We've had a very strong withdrawal from storage as a result of cold weather, and we've had a low rig count for the past 18 months, and we're not replacing production," Wagner said. Cold weather is depleting gas storage -- now nearly 43 percent below one year ago, according to the Energy Information Administration. However, there are other forces at play. Wagner said the price of crude oil has been pushed to the mid-$30 per barrel due to the possibility of war in Iraq and the oil strike in Venezuela. Natural gas pricing follows crude pricing, and both have been on the rise. "If there is war in Iraq and it's settled relatively quickly without a lot of interruption to crude oil supplies, we think you'll see crude oil drop down to the mid- to low $20s per barrel. And we'd expect some sympathy reaction from natural gas," Wagner said. Nichols said Devon Energy's North American operations are focused mostly on natural gas, and that focus will remain given the future pricing climate. "Prices will knock out some demand, but it can't knock out all the demand," Nichols said in the telephone conference. "This year is the first time since 1986 that Canadian imports actually fell. ... We think it's going to be robust for natural gas all year long."