Hurricane, supply cut may lift gas prices

MUMBAI: Rising inventories in the global market has taken a toll on natural gas producers. But the depression in prices may finally be over with the start of hurricane season in the US and a supply cut by major gas producing countries ��� the US and Russia. Hurricane season disturbs oil exploration and refining process, as a
result of which the demand for natural gas goes up.

Since March 2009, natural gas prices have slipped around 9% to its current level of 3.7-3.8 mmBtu. In contrast, crude oil prices have moved up 70% during the period to $68 at present. The fall in natural gas prices has been attributed to rise in inventories, which, at 2,337 billion cubic feet (BCF), is 22% higher compared with its five-year average.

On MCX, the decline has been over 15% since March 2009 to the current level of Rs 181 per mmBtu due to an appreciation in the rupee. The rupee, at 47.48, is up by over 8.5% from its 51.94 level in March 2009. Analysts feel natural gas prices may see a correction at Rs 150-165 per mmBtu, and any dip in prices, below Rs 165, should be seen as a buying opportunity. ���Long-term view is bullish and prices can go up to Rs 225 to Rs 250,��� said Atul Shah, head commodities, Emkay Commotrade.

But Kunal Shah, analyst with Nirmal Bang Commodities, is bullish even for the medium term. ���The downside in natural gas looks limited and the July contract on MCX could touch Rs 215 in a month,��� he said. ���The ratio between crude oil and natural prices has more than doubled to 17.5 level since January. ���The average ratio is between 11.5 and 12, so the prices of natural gas should rise to touch the average level,��� he added. According to Mr Shah, Rs 180-Rs 183 level provides a good buying opportunity.

At 4.45 pm local time, MCX June contract was trading up at Rs 181 mmBtu from its previous close of Rs 177, while the June contract on Nymex was trading at $3.8 mmBtu compared with its previous close of $3.73. The Nymex June contract was trading up at $3.78.

A fall in prices coupled with credit crisis halved drilling operations in the US. In fact, the number of natural gas drilling rigs in the US has dropped from 1,600 in September 2008 to 793 at present.

Also, the gas output from Russia���s Gazprom, the world���s largest gas producer, fell 12% since February to 1.24 billion cubic metres (bcm) per day in March, according to the data released by the Russian energy ministry. Local brokerages such as Kotak Commodity Services are bullish on natural gas in the long run. However, it expects the prices to correct at $3.70 level and even touch $3.55 in the short term.