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FAIRFAX, VA, July 6, 2000 - In June, natural
gas spot market prices approached $4.50/MMBtu, and NYMEX futures
were even higher—more than double the previous year's
prices. This raises two important questions: What is driving
natural gas prices so high? How long will this continue? Using
its proprietary natural gas resource and market assessment
models, ICF Consulting recently simulated the market for the
past two years and evaluated the factors that could affect
natural gas prices. The findings are in the company's North
American Gas Market Outlook 2000.
According to ICF Consulting oil and gas experts Michael L.
Godec and Robert E. Baron, high oil prices are, by far, the
primary driver for recent high natural gas prices. According
to Baron, "Extreme weather, storage levels, short-term deliverability,
and crude oil prices also have contributed significantly,
but high oil prices are the big driver."
"Today's conventional wisdom holds that crude oil prices no
longer have significant influence on natural gas prices. But,
this 'decoupling' appears to have been reversed, at least
for the time being," said Michael L. Godec, Senior Vice President
and Managing Director of ICF Consulting's Oil and Natural
Gas Practice. "Oil and gas prices decouple when excess gas
supply exists and oil prices are low. In such instances, the
gas market is driven by gas-on-gas competition, and gas prices
at the burnertip fall below parity with petroleum prices.
But today, the situation is the opposite; oil prices are high
and gas supplies are tight. As a result, oil and gas prices
at the burnertip are near parity and have again become coupled."
What happens if oil prices stay high? According to ICF Consulting's
analysis, tight natural gas supplies appear to be sustaining
gas prices in the short-term. Low oil prices in 1998 depressed
both oil and gas drilling, resulting in near-term concern
over gas deliverability. However, in both the short- and long-term,
oil and gas prices and E&P economics drive drilling. The
low oil prices of 1998 reduced cash flow and caused the industry
to postpone drilling investments. The greater level of drilling
in recent months, supported by higher prices, will lead to
increases in gas deliverability.
Will high gas prices continue? "In our opinion, deliverability
concerns are short-term phenomena—long-term indicators
of supply potential and reliability appear strong," said Baron.
"We believe that high gas prices are not sustainable; however,
the timing of the decline is uncertain. In the long term,
ICF Consulting's outlook on natural gas in North America remains
quite bullish. This view is grounded on irrefutable fundamentals.
The rate of decline in gas prices depends on the sustainability
of high oil prices. If oil prices remain high, then gas prices
in the near-term may remain high, declining slowly over time
as continued sustained drilling increases natural gas deliverability
and causes a decoupling of oil and gas prices. If oil prices
drop, then gas prices will follow, with oil and gas prices
remaining coupled, reequilibrating at a lower level at parity
with petroleum product prices."
ICF Consulting's North American Natural Gas Outlook
annually reviews and analyzes the issues and events driving
gas markets, such as new gas supplies, pipeline projects,
and expected demand changes. The study projects market demand,
supply, and prices and highlights changes from last year.
The current analysis, which has recently been completed, closely
examines market demand for gas from Western Canada and Atlantic
Canada in addition to U.S Gulf of Mexico and other sources.
The product, offered as a presentation to senior executives
and managers of energy enterprises, is customized to discuss
client-specific implications of study results. These may include
short-term price sustainability, pipeline project impacts,
gas storage issues, or price uncertainties, among others.
ICF Consulting's Energy
Practice provides market assessment, asset valuation, due
diligence, and strategic consulting services in all aspects
of the North American energy market.
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ICF International (Nasdaq: ICFI) partners with government and commercial clients to deliver consulting services and technology solutions in the energy, environment, transportation, social programs, defense, and homeland security markets. The firm combines passion for its work with industry expertise and innovative analytics to produce compelling results throughout the entire program life cycle, from analysis and design through implementation and improvement. Since 1969, ICF has been serving government at all levels, major corporations, and multilateral institutions. More than 1,800 employees serve these clients worldwide. ICF’s Web site is http://www.icfi.com.
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For Immediate Release
Contact: Douglas Beck
1.703.934.3820
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