Natural Gas Outlook | Russell T. Rudy Energy LLC
For a while it looked as though natural gas prices were immune to the precipitous price declines that have been ravaging oil. The good news is that domestic natural gas markets are less influenced by international geopolitical forces than oil. In fact, LNG imports are down, as are gas imports from Canada. Net gas exports to Mexico are also up, and storage inventories are pretty much at the 5 year average.
So much for the good news. The bad news is hopefully temporary, but nevertheless bad. Although the current weather forecast is for a cold snap across the U. S., the first half of this winter has been warm, thereby depressing demand. However, natural gas production is at an all- time high. Much of the production growth is from the Marcellus and Utica shales (primarily in Pennsylvania and Ohio). Further, in spite of plummeting oil prices, the amount of gas produced in association with oil is projected to increase in 2015 as well. Much of this associated, or casinghead gas, will be from the Eagle Ford shale in South Texas. This is partially offset by declining production in the Barnett and Haynesville shales (primarily in North Texas and Louisiana).
Fortunately, as gas prices drop, switching from coal to gas at power generation plants which are able to do so, will add to demand. There will also be some incremental demand for gas as coal fired facilities are retired.
In the long term, LNG exports to Asia could significantly help demand for natural gas and consequently prices. However, the lead times on approvals, the capital outlays required, and the time to build facilities make this irrelevant in any discussion of current prices.
