Natural gas should remain cheap and plentiful in near term, says PointLogic official

Despite dramatically-declining prices, production of natural gas continues to be strong, PointLogic Energy President Randy Rischard told GenerationHub’s GenForum gathering on Aug. 23 in Columbus, Ohio.

GenForum was a half-day event co-located with PennWell’s POWER-GEN/Natural Gas in Columbus.

Natural gas production continues to grow although prices have plummeted and rig counts are down. Since January 2015, rigs are down 74% but production is up 1.5%. Henry Hub prices have declined 36%, Rischard said.

Thanks in part to improvements in drilling efficiency, gas producers can still break even despite today’s lower prices, Rischard said.

“Drilling costs are way down and the cost of completion is way down,” Rischard said. Now rigs can literally “walk around a pad site,” and drill more wells than they used to, Rischard said.

This means that the “break even” cost of natural gas production is much cheaper than it used to be. Officials with PointLogic and corporate parent IHS expect to see natural gas to rebound to more than $3/mmBtu in 2017, “but not much more than that,” Rischard said.

Don’t expect natural gas prices to rise much higher than $4 in the foreseeable future, Rischard said. The industry entered the summer with natural gas storage levels at “historic highs,” Rischard said.

There is a large backlog of the number of wells that are drilled but uncompleted (DUCs), Rischard said. Such wells could easily be brought online if the market warrants, he added.

About 43 GW of gas-fired power generation under construction

About 43 GW of power generation is under construction in the United States and almost 60% of that is either combined-cycle natural gas or gas-fired combustion turbines.

“Nearly half of the natural gas under construction is in PJM, where more than 12,000 MW is expected online over the next two years,” Rischard said.

Power generation accounts for more than half of the demand for natural gas in the United States at 34.2 billion cubic feet/day (Bcf/d). Industrial use is a distant second at 19.5 Bcf/d. That demand is listed at 65.3 Bcf/d, including natural gas exports to Mexico and liquefied natural gas (LNG) exports.

The current natural gas storage balance in August is about 3.3 trillion cubic feet (Tcf), and that’s “the highest ever for this time of year,” Rischard said.

PointLogic forecasts indicate that natural gas production in the “lower 48” states will grow 13.5 Bcf/d between 2015 and 2021, Rischard said. Most of that lower 48 growth will be concentrated in the Northeastern sector due to non-conventional gas from shale.

New natural gas pipelines in development will provide “new escape routes from the Northeast,” Rischard said.

Expect gas production growth in 2017 and beyond to be “demand driven,” Rischard said.

There is a lot of new infrastructure coming online in the Southwest that will support gas exports from the United States into Mexico, Rischard said. Exports into Mexico should increase significantly through 2021.

The amount of liquefied natural gas exports from the United States to other nations are growing but face challenges, Rischard said. For example, U.S. exports face headwind from 2019 through 2021 due to lower price supply growth in Australia.

The LNG oversupply through 2021 should put downward pressure on global pricing, Rischard said.

Natural gas should eclipse coal in U.S. power generation this year. But wind and solar additions could crowd out natural gas additions over the next decade.

“It’s been a pretty phenomenal summer so far,” Rischard said. “For the same temperature we are burning a lot more natural gas” than in prior years, Rischard said. That’s connected to the retirement of much coal-fired generation, Rischard said.

Recent high temperatures have also “elevated coal burn and helped reduce record stockpiles,” Rischard said. Now that many older coal units have retired, the remaining ones should be more competitive with $3 gas expected in 2017, Rischard said.

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.