Prices down, supply up: Natural gas cost bounces predicted in North America

December 2009 Vol. 236 No. 12

Wood Mackenzie released an update on the North American natural gas outlook Nov. 20, with a grim prognosis for the future of natural gas prices through 2011.

The low price projections result from new coal capacity and increasing production from new LNG projects abroad, encouraging imports. The forecast predicts prices as high as $10 from 2013-2014, as decreased investment results in tighter supply and possible new federal regulations on carbon take effect. The study’s long-term projections have prices settling at six to seven dollars for production within the United States.

The report’s main points include the following:

  • Despite short-term supply declines and economic recovery, lagging demand due to new coal generation capacity and increased LNG imports keep downward pressure on natural gas prices in 2010-11.
  • LNG outages have mitigated the impact of new LNG projects coming online…but increasing supply from new projects in 2010-11 will ensure North American LNG import growth.
  • Reduced investment now – apart from the shales – means higher prices later. Domestic production must grow rapidly to meet accelerating demand in 2013-14, and strengthening global markets draw LNG out if North America. Domestic resources are more than sufficient, but rig and service constraints put temporary pressure on costs. Prices rise to $6-$7.
  • Shale gas availability does not preclude short-lived prices with a base case of $7 and possible as high as $10 in 2013-14. Federal carbon legislation, rapid coal retirements or weather events could push prices toward this level.
  • Beyond that transition period, cost pressures subside, and prices return to the $6-$7 long-run cost of domestic production. US production of 70 bcf a day or more is feasible with the large resource base.
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