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U.S. Gas Price May Rise on Asian Demand, Goldman Says (Update2)

By Dinakar Sethuraman

June 19 (Bloomberg) -- U.S. natural gas prices, which have surged 78 percent this year, may extend gains because of competing demand for liquefied natural gas from Asia and Europe, Goldman Sachs Group Inc. said.

LNG consumption in Asia and Europe may increase on stronger economic growth, emission costs and surging prices of alternate fuels such as oil and coal, the investment bank said in a June 18 report. Goldman cut its estimates for U.S. demand for 2008 by 13 percent to 1.54 billion cubic feet a day (12 million metric tons a year).

``We believe U.S. natural gas prices will likely remain in the $12.70-to-$13.20 per million British thermal units range, in line with international prices,'' Goldman's analysts, Samantha Dart and Jeffrey Currie, said in the report e-mailed to Bloomberg today. ``However the observed tightness in the LNG market suggests that risks to our price forecasts remain skewed to the upside.''

LNG demand is set to increase by 10 percent a year through 2015, more than five times estimated gains in crude oil, as power producers switch to cleaner fuels, according to Citigroup Inc. Asian purchases of LNG have risen after Tokyo Electric Power Co. shut its Kashiwazaki Kariwa nuclear plant since July 2007 because of earthquake damages.

LNG is natural gas that has been chilled to liquid form, reducing it to one-six-hundredth of its original volume, for transportation by ship to destinations not connected by pipeline.

First Quarter

``Natural gas in the U.S. is at a pretty significant discount to crude,'' John Harris, director of the global LNG group of Cambridge Energy Research Associates Inc., which advises oil companies, said from Beijing. ``And there's underlying growth in the Asian LNG market because of the nuclear outage in Japan.''

Natural gas futures reached $13.295 per million British thermal units on the New York Mercantile Exchange today, the highest since December 2005.

Goldman, the world's biggest securities firm, raised its forecast for Japan and South Korea's LNG demand by 3.3 percent to a combined 13.17 billion cubic feet a day. European LNG demand may climb 1.9 percent to 5.85 billion cubic feet a day, the report said.

Consumption of LNG in Asia, including Taiwan, China and India, averaged 17 billion cubic feet a day in the first quarter, exceeding Goldman's previous forecast by more than 1 billion cubic feet, and about 13 percent higher than a year earlier, according to the report.

``The higher-than-expected increase in LNG demand from Asia and Europe came at the expense of the U.S.,'' the authors said.

The increase in Asian LNG purchases was led by South Korea and Japan as the gain in oil prices and declines in nuclear generation capacity prompted power plants to switch to natural gas, the report said.

Natural gas prices may rise as inventories may be at limited levels when the Northern Hemisphere winter arrives, Morgan Stanley said in a report on June 16.

To contact the reporter on this story: Dinakar Sethuraman in Singapore at [e-mail].

Last Updated: June 19, 2008 04:16 EDT