Rigzone: Outlook for Natural Gas - April 29

[dan_s]

For natural gas, sub-$2.00 prices since mid-January have stagnated production. While output increased ~13 percent in 2018 and ~11 percent in 2019, new supply this year and next might not materialize. Hedging programs are beginning to roll off, and there is a general belief that prices must climb to at least $2.35 for the industry to regain an upward trend (that is still a very low price).

Accounting for 20-25 percent of total U.S. gas supply, “associated gas” in Texas will be burdened by lower crude prices and plummeting rig counts. Yet, capturing flared gas and the fact that oil wells turn “gassier” as they mature should help compensate.

Longer-term, we remain bullish on U.S. gas production: domestic demand will be clearly be there. Gas is rising to 45 percent of U.S. power generation capacity and will set another record for power burn this summer, as coal and nuclear units continue to retire. In fact, it is such low gas prices themselves that are giving gas a competitive advantage over still intermittent and more expensive renewables and their needed battery storage systems. Apparently quietly so, gas used for electricity over the past five years has soared 40 percent to reach 31 Bcf/d, made even more remarkable since total U.S. electricity demand remains flat (~4,050 TWh).

And still waiting in the wings, there are hundreds of billions of dollars worth of new U.S. manufacturing projects primed to utilize cheap ethane from shale gas for ethylene, the building block of plastics and other industrial products. Although troubled right now, the U.S. LNG export boom is also playing the long game to ultimately become the world’s largest supplier within five years or so. No wonder that DOE holds average annual gains for U.S. gas production at ~2 percent. Simply put, the country will have to produce: DOE models oil and gas supplying at least 60 percent of U.S. energy for as far out as it goes (2050).
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NYMEX futures for Jan 2021 gas are trading at $3.07 this morning.

[dan_s]

Read this: https://www.eia.gov/todayinenergy/detail.php?id=43535

Natural gas prices and to a lesser extent NGL prices are determined by regional supply/demand. The U.S. gas market is going to be MUCH TIGHTER in six months.