Natural gas industry expects gas prices to stay within $6 in 2020

Over half of the natural gas industry participants who responded to a recent Black & Veatch survey expect gas prices to stay somewhere between $4.50 and $5.99/mmBtu in 2020.

Meanwhile another 18% expect the price to be between $6 and $7.49, according to the survey findings released Oct. 30. Almost 11% of the survey participants expect gas prices to stay lower than $4.50 in 2020.

Don’t expect to see prices much above $6 to $7 anytime soon, said Peter Abt, a chief author of the analysis. Abt is a managing director and leads the oil & gas strategy practice within Black & Veatch’s management consulting division.

Abt helped put together the 70-page “2013 Strategic Directions in the North American Natural Gas Industry.”

In a phone interview with GenerationHub, Abt said he was struck by the incredible sense of optimism throughout the natural gas industry. The gas industry is confident that it will play an increasingly large role electric generation as North America reduces its coal use.

But increased gas-fueled electric generation is a gradual process and should not cause a dramatic price shock, Abt said. “The coal retirements and the nuclear retirements take place over time,” Abt said.

More than 85% of participants identified electric power generation as a key driver of increased overall demand.

Liquefied natural gas (LNG) exports and natural gas vehicle transportation were also listed as key emerging markets.

Natural gas exploration and development in North America is in the midst of “significant growing pains” according to the report.

Producers are worried about issues like cost recovery for pipelines in high production areas.

Most existing pipelines “were built to serve gas customers, not electric generation,” Abt said. While New England has drawn most attention, this tends to be true nationally, he added. Currently, no clear policy mechanism now exists to help pass on the cost of new pipes being built largely to serve electric generation, Abt said.

This is a key gas-electric coordination issue going forward, Abt said.

Industry not too concerned about fracking regulation

While government agencies are studying the impact of hydraulic fracturing or “fracking,” the gas industry seems to think any new regulations will be manageable.

Producers are confident in their ability to develop shale gas in a safe and effective manner. More than 80,000 operations have been completed in the United States, and the methodology – hydraulic fracturing – has been in use since the 1950s.

Producers are continually working on ways to minimize potential water impacts from fracking, Abt said.

Fracking and horizontal drilling have been linked to the dramatic increase in production from non-traditional shale reserves in North America.

Increased use of inland shale reserves has made natural gas industry less dependent on gas produced in the Gulf of Mexico as compared to 2005, Abt said. This makes the gas market “a little more insulated” from hurricane risk than it was a decade ago, Abt said.

Black & Veatch issued a compilation of data and analyses from an industry-wide survey. Black & Veatch conducted its second annual natural gas survey from June 18 until August 23.

A total of 336 participants completed the 30-minute, online questionnaire. More than a third (37%) of the people who filled out the survey represented law firms while 25% were equipment vendors. They were followed by consultants (14%) and educational institutions (almost 11%).

About Wayne Barber 4201 Articles
Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 20 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants. Wayne can be reached at wayneb@pennwell.com.