A 2017 Gas Forecast | Russell T. Rudy Energy LLC
In a recent article in “Oil Voice”, author Art Berman makes the case for continued strong natural gas prices for the rest of 2017. Berman is quick to point out that a year ago, the consensus among gas industry analysts was bearish, but he correctly predicted that prices would double. Once again, pessimism prevails, and once again Berman predicts that the bears will be wrong, at least for this year.
The conventional wisdom is that that production from massive reserves of the Marcellus and Utica shales of Pennsylvania, West Virginia and Ohio are temporarily constrained by a lack of pipeline capacity. The thinking is that the Rover Pipeline, scheduled to come on stream late this year, will release a flood of gas onto western markets, driving down prices.
Berman cautions that there are three components to gas supply: conventional, shale and imports. Since 2008, conventional gas production has been in terminal decline and is currently falling about 3 billion cubic feet per day (bcf/d). Shale gas output is growing and currently constitutes about 2/3 of domestic production. To offset the decline in conventional production, shale gas output would have to increase about 3 bcf/d. A couple of years ago, that would not have been a problem, however, in the first quarter of this year, shale gas output grew less than 2 bcf/d.
Berman contends that even if the rate of growth for shale gas production were to double for the rest of this year, supply would only remain flat. For prices to fall significantly below the current $3.25 per million British Thermal Units (mmBTU), supply would have to far exceed current levels.
Admittedly, the gas rig count has more than doubled since June of 2016 and the Energy Information Administration predicts that this will result in an additional 3.5 bcf/d from now until the end of this year. However, Berman rejects this forecast as wildly optimistic and thinks overall supply will continue to fall and anticipates year end gas prices of almost $3.50/mmBTU. Concurrently, he sees gas imports falling by .3 bcf/d compared to an increase of 1.7 last year.
The Rover Pipeline will transport Marcellus and Utica gas to the Defiance, Ohio, hub where there is a surplus of gas. Some if this gas will then go to Canada and the balance to the Midwest and Gulf Coast where it might well drive down prices. However, Rover will not reach Defiance until November, and it is unlikely that any gas it is transporting will reach domestic markets in time to affect 2017 prices.
To read the article in its entirety, which includes some excellent graphs, please go to https://oilvoice.com/Opinion/4797/Strong-Natural-Gas-Prices-And-Tight-Supply-In-2017?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+OilvoiceHeadlines+%28OilVoice+Headlines%29 .
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