By the Numbers – Robinson

Gas below $5 until 2016

“Natural gas market fundamentals and forecasting,” the first broadcast (mid-March) in the Current Intelligence weginar series sponsored by GDF Suez Energy Resources NA, proved valuable to generation professionals as well as to commercial, industrial, and institutional electricity buyers.  Access the webinar series at gdfsuezenergyresources.com.

   The featured speaker, Jennifer Robinson, a senior energy analyst at Bentek Energy LLC, Evergreen, Colo, treated the cyber audience of over 400 to a wealth of information on domestic production and explanations of both supply- and demand-side metrics affecting the price of natural gas (natgas).  Robinson is responsible for Bentek’s Northeast Observer  and NE Market Call publications.

 

Highlights of the presentation:

  • Significant drilling in the center of the country is driving supply growth, which continues to outpace increasing demand—at least for now. Producers in the so-called “Liquids fairway” (area of the map defined by the green line) have added rigs at a blistering pace to extract high-value natgas liquids and condensates from shale formations. Rig count in the Eagle Ford, Permian, Anadarko, and Williston fields alone increased by 245 in the past year.
  • Storage inventories are headed for all-time highs because of increased production and a mild winter. If this summer is mild as well, there is the potential for supply to “bump up against constraints and test [storage] capacity” in the shoulder months. If this happens, Robinson warned, downward pressure on prices would be “severe” and gas prices could drop below $2 by October.
  • According to Bentek, low prices are fueling strong demand growth in the near term. Market indicators include increasing electric production by natgas-fired powerplants, an uptick in orders for gas-turbine-powered generating stations (see previous article), and the retirement of coal-fired units east of the Mississippi River.
  • Fuel switching: In the long term, infrastructure changes in the Northeast to replace fuel oil with natural gas for heating also will buoy demand.
  • Total generation is down in the US by 5.6% since 2008, while the gas power burn has increased by 29.1% (map). From a regional perspective, displacing coal power in the Northeast and Southeast has led to tremendous gains in market share for gas-fired generation.
  • What will the future bring? Gas prices will most certainly rise. The Cross-State Air Pollution Rule will make it uneconomical for coal-fired plants to operate in some areas. Several LNG terminals, originally slated for import, will be converted for export service and cut into domestic supply. All this leads to the addition and increased use of gas-fired plants, especially in renewables-stricken areas east of the Mississippi River. Bentek Energy estimates that supply and demand will gradually converge, with gas prices hitting the $5 mark sometime in 2016.