We see absolutely no fundamental drivers in the U.S. natural gas production and supply metrics for 2011/2012 that would allow natural gas to sustain prices over $5-6/mmbtu. Prices are capped due to leasehold drilling obligations under use or lose obligations, which will continue to bring record supply to market and storage. This, when combined with a projected double dip in the economy, which we believe the U.S. market has already entered, will drive natural gas prices down in 2011.
Accordingly, we see no pricing power at the natural gas exploration and production companies during 2011 and the majority of 2012. Producers will have to rely upon their forward price hedges on physical production to meet cash flow requirements, as most are significantly levered and will not seek additional debt.