Natural gas prospects weak on declining contango: Barclays

Nymex Natural Gas prices have been on a downward slope since hitting a high of $5.1/MMBtu in June. In fact, the longer term trend has been negative after prices

hit a high of around $10.5/MMBtu in 2008. With prices now trading at $3.50/MMBtu, that is an almost 65% decline in gas prices in 3 years
Looking forward to 2012 and 2013 also does not bode well. The most alarming fact for natural gas producers has been that the autumn's decline has been reflected along the curve, thereby weakening what has been a persistent contango.
Not only has prices for 2012 fallen well below the level producers find acceptable for hedging, 2013 gas prices are also falling in the same pattern.
The reliable multi-year contango had provided the producers with an ability to sell forward the contracts while locking in some margins. However, with contango declining, margins for producers are expected to contract.
2012 gas is selling for around $4.10/MMBtu while 2013 prices are at $4.65/MMBtu making it look unattractive. Even though some producers can churn out profits at $4/MMBtu, it remains to be seen how long prices can remain depressed.
Producers have hedged 2012 pretty well, so any effect on drilling due to weaker forward prices is likely to occur only by 2013.
Source: Commodity Online