Natural gas prices are likely to increase by the end of 2017, due to tight supply and production, according to Arthur Berman, a petroleum geologist with 36 years in the industry.
Berman accurately predicted that natural gas prices would double last year despite other analysts' bearish position, and is again standing against "the mainstream narrative" which believes a market glut is imminent. In his report on OilPrice.com, Berman discusses the reduction in production and the unrealistic volumes needed to see a drop in pricing. Instead, he predicts that spot pricing for natural gas will actually be higher at the end of the year.
"Since 2008, conventional gas production has been in terminal decline and has fallen 26 bcf/d. It is currently falling about 3 bcf/d each year. Shale gas–including associated gas from tight oil—now makes up more than two-thirds of domestic supply. That means that shale gas output must grow by more than 3 bcf/d each year to offset falling conventional supply.
"But annual shale gas production growth slowed from almost 7 bcf/d in the first quarter of 2015 to less than 2 bcf/d in the first quarter of 2017.
"If shale gas production growth doubles in 2017, then supply will be flat but considerably lower than 2015 levels when over-supply crushed gas prices. Gas supply must increase well beyond what is likely this year in order for prices to fall much below current levels of about $3.25 per mmBtu.
"It is noteworthy that the overall supply balance (red and blue fill in the figure) remains in deficit for most of the year, and that spot prices continue to increase, ending the year at almost $3.50/mmBtu. Net imports (the third component of total supply in addition to shale gas and conventional gas) are forecast to average -0.3 bcf/d in 2017 compared to +1.7 bcf/d in 2016."
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