Utilities would like consumers to believe that natural gas prices will remain lower than oil prices for at least the next few years, but one analyst pokes holes in that belief in a recent article posted on The Motley Fool website.
Arjun Sreekumar questions the assumptions behind a 2014 IHS report entitled Fueling the Future with Natural Gas: Bringing it Home that suggests natural gas will continue to hold a price advantage. The report “may seriously underestimate increasing demand for gas, while overestimating supply growth,” he writes.
Three factors are combining to increase demand for natural gas: utilities, liquefied natural gas (LNG) exports and energy-intensive manufacturing and petrochemical operations, the article states. A fourth sector, transportation, could also absorb a lot more natural gas supply, according to The Motley Fool.
At the same time, “there are concerns that production from shale gas wells will decline at a much faster rate than output from conventional gas wells,” the article continues. “According to estimates by Pete Stark, senior research director at IHS, the average flow from shale gas wells can plummet by as much as 75 percent in the first year of production. If shale wells’ decline rates turn out to be higher than the industry expects, it could significantly constrain production growth.”
“I still think there's a very strong possibility that natural gas demand from utilities, LNG exports, manufacturers, and perhaps even the transportation sector over the next five years could surprise to the upside, while supply growth could be weaker than expected,” Sreekumar writes. “As such, I find it difficult to envision a scenario in which gas prices remain below $5 per Mcf through the rest of this decade.”
To read the Motley Fool article article, click here.