No dramatic price increase for natural gas seen in 1Q14, ICF says

Continued growth in Marcellus shale gas production is likely to keep natural gas prices “soft” during the first quarter of 2013, ICF International (NYSE:ICFI) said Dec. 16.

Meanwhile, the ongoing coal-to-gas power transition will be seen most strongly in the Midwest and Southeast, where the majority of U.S. coal capacity is located. Additionally, recent nuclear retirements will remove base load capacity from the supply stack and pressure energy prices to the upside in the affected regions, ICF said in a quarterly report.

The firm announced its “ICForecast Energy Outlook” for 1Q14. The study highlights the near- and long-term future of gas prices; the impacts of proposed U.S. federal environmental regulations; and projections on pollution control installations, coal production, and renewable energy development.

ICF’s retirement projection for U.S. coal plants remains steady in the range of 60 GW by 2016, with more room on the upside as EPA advances CO2 regulations, the firm said.

Despite the regulatory and market challenges facing it, coal market demand has started to show signs of life, although it will be well into 2014 or later before demand reaches 2011 levels. International prices remain depressed, which makes U.S. coal less competitive and will reduce U.S. exports in 2013 and 2014 compared with the record high exports in 2012.

Gradual move away from $4 gas environment expected

ICF Senior Energy Market Specialist Frank Brock expects winter natural gas prices to bounce around the $4.50 to $5/mmBtu range for the next year or so with summer or “shoulder” month prices dropping to $3.50/mmBtu during the same period.

“The demand growth is really going to accelerate,” in the 2015-to-2020 time period, Brock said. The market will then move away from the current $4 environment.

This will be due to a combination of issues ranging from increased coal plant retirements to greater domestic industrial demand for gas and natural gas exports, Brock told GenerationHub. “A lot of those things pile up” after 2015, he added.

Pipelines exiting the Northeast region remain congested, but recently added capacities to New Jersey and New York pipelines have lifted prices on the Tennessee Line 300 pipeline and other trading points within Marcellus, ICF said Dec. 16.

After declining most of the year, rig activity in the Marcellus appears to have leveled off and other planned pipeline expansions will likely encourage additional drilling activity in the coming year. Despite the “supply-rich” environment in the Marcellus region and throughout most of the country, the New England gas market remains constrained, and therefore is likely to continue to see high winter prices, ICF said.

More significant gas prices aren’t likely to start until 2015, the firm suggested. Looking further out, ICF expects prices to firm between 2015 and 2020 as demands from new petrochemical plants, liquefied natural gas [LNG] export terminals, and pipeline exports to Mexico start ramping up. These new demands, combined with continued increase in gas use for electric generation, will place significant upward pressure on gas prices and increase the potential for price volatility through the end of the decade.

Wind energy development has significantly slowed from previous years and will remain relatively sluggish in all but a few select areas of the country under current renewable energy policies.

 

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.