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Natural Gas Prices Could Rise as Production Finally Slows

News Article by VME Fabricators

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dividend-linn-energy-llc-linnco-llcA historic low in natural gas prices should ease over the next two years, according to a forecast released Monday by the U.S. Energy Information Administration.

Following a December average of $1.93 for the Henry Hub benchmark, federal analysts predict gas prices will average $2.65 per MMBtu this year and $3.22 in 2017.

Oil and gas drillers across the United States have struggled under collapsing commodity prices, driven in part by a boom in domestic shale drilling that has transformed the industry.

 

But the U.S. gas surge is now beginning to taper off. This year U.S. production is only expected to grow by 0.6% compared to a 7% annual growth rate in 2015.

And forecasters are expecting the demand for gas to increase. They pointed to high consumption by the U.S. power sector, as it shifts away from coal and towards gas and renewables. At the same time cheap natural gas had led to increased demand from the industrial sector, which uses the fuel to produce chemicals and fertilizer.Woodhollow-Golf

Even with a rise over the next two years, natural gas prices are expected to remain historically cheap. Since 2005 the Henry Hub benchmark has averaged $5.18 per MMBtu.

 

The recent price shock comes during a shift in U.S. energy policy. The government has authorized the export of liquefied natural gas, with the first facility, Cheniere Energy’s Sabine Pass terminal on the Louisiana Gulf Coast, expected to begin operation this year.

STX-sliderAlso, the flow of gas through pipelines connecting U.S. fields to Mexico is increasing rapidly. In October more than 98 billion cubic feet of gas was exported to Mexico, a four-fold increase from the same period in 2010.

In its report Monday, EIA predicted by the summer of 2017 the United States would be a net exporter of natural gas. That has not happened since 1955.

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