What Is the New Normal for U.S. Natural Gas Prices?
Published: October 5, 2011
Ian Bowman
Lately, projections for natural gas prices for the next few years seem to be settling around $4 to $5. This is good news for gas users. Until recently, the widely held expectation was that prices wouldn’t stay below $6. Over the past few years, E Source, the U.S. Energy Information Administration and many other organizations have revised their projections from a V-shaped price dip that quickly returns to above $6 to one with a long, slow, steady climb up from $4. So, why are prognosticators getting more comfortable with gas prices around $4?
Seeing is believing. Prices have been hovering around $4 for some time, and there’s nothing like seeing prices remain steady to make it feel possible.
Supply growth is strong. Producers continue to report their ability to sustain growth at current price levels. Yes, they’re switching to more oil- and liquid-rich plays, but they’re not saying they’ll produce less gas than they currently are.
Demand growth is weak. An accelerating recovery of the U.S. economy looks less likely than it did a couple of years ago. Unemployment is a huge drag on consumerism, and that’s a problem that isn’t likely to be resolved anytime soon.
Impacts from long-known external risk areas are diminishing. We’re less concerned about hurricanes because currently only around 10 percent of production comes from the Gulf of Mexico. And international political upheaval is less of an issue because the U.S. only imports around 10 percent (and that number is decreasing).
New external risks aren’t yet clear, or seem unlikely to occur. Chief among the “new” risks that are lately being discussed is some form of change in U.S. federal regulation that would disfavor natural gas. It’s possible that could happen, but it seems like hype. Here’s why:
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Democrats and Republicans seem to be in agreement that natural gas is good for the U.S. (What? They agree on something?) Whether the message is primarily about “cleaner than coal,” “bridge fuel to the future,” “an American fuel,” “the Pickens plan to move transportation from foreign oil to natural gas,” or just “drill, baby, drill,” nearly all of the core platform messages are favorable to natural gas.
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A hasty U.S. Environmental Protection Agency (EPA) assault on hydraulic fracturing, or “fracking,” seems unlikely given the political capital the agency has already expended (and will continue to expend over the coming years) to execute coal and clean-air rules. Furthermore, the EPA has released a timeline for its fracking study that includes releasing initial results by the end of 2012 and a full report in 2014.
So, what’s the bottom line? Currently, U.S. consumers use roughly 22 trillion cubic feet per year, so the difference between prices at $4 and $6 comes out to around $44 billion dollars per year that residences, businesses, and natural gas–fired electric generators should save on natural gas commodity per year. Barring some dramatic turn of events, there’s reason to believe that natural gas prices will hold steady for at least a couple more years.
If you’d like more information about our assessment of natural gas and electricity prices as well as macroeconomic trends, you can attend our upcoming “Outlook for Power and Gas Prices” web conference, which is being held October 12. Contact us to register.
Welcome to the sixth issue of The Bottom Line! This e-mail newsletter provides corporate energy managers, energy procurement professionals, and leaders in sustainability with a first look at industry trends and insights that directly impact your bottom line. Our goal is to provide you with actionable information to help streamline your efforts and improve results in three main areas: energy efficiency and conservation, energy procurement and supply management, and greenhouse gas (GHG) measurement and mitigation. |
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About the Author
Ian Bowman
DIRECTOR OF ENERGY ACQUISITION PRODUCTS
Ian Bowman leads development of web-based software tools, products, and support services that incorporate the company’s expertise in energy supply procurement, contract management, and budgeting. Ian has more than 12 years of experience in technology management and lean business-process development. Most recently, he was director of IT and new product development at EnergyWindow, which was acquired by E Source in 2008. Prior to that, he held positions as director of development at energy consultancy UtiliTech Inc., where his duties included strategy development, continuous improvement, and software development; senior market analyst at First Energy Solutions, focused on the large commercial and industrial market segment; and business process development manager at deregulated electric supplier GPU Advanced Resources.
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