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Morgan Stanley Cuts Price Targets on Natural Gas-Related Firms

In a research note published Tuesday morning, analysts at Morgan Stanley had a lot to say about the energy industry, particularly the natural gas industry, and very little of it was good. Of 18 utilities, exploration and production companies, railroads, and liquefied natural gas (LNG) exporters, only one got a price target increase.

The analysts revised their 2017 commodity price target from $3.50 per million BTUs to $3.10, an 11% cut. The outlook for 2018 faded even more, from a prior target of $3.20 per million BTUs to $2.90, and over the longer term, prices are forecast to drop from a prior target of $3.75 to $2.75, a 27% decline.

The falling price targets are attributed to sharp declines in break-even costs for U.S. shale plays, “substantial capital productivity” improvements in extracting natural gas and demand erosion caused by increased use of renewables and “normalizing hydrology” (more rain and snow) in the western states.

Notice that coal is not a factor in the forecast. Here are some of the firm’s comments on coal demand and...