U.S. natural gas supply and demand should continue to be robust through the next 10 to 12 years, but a panel of experts in Los Angeles have different ideas on what this could mean for future prices and volatility.
Speaking at the LDC Gas Forum Rockies & West, EDF Trading North America chief Jeff Welch said Tuesday the Southern California (SoCal) hub in the West has become "the premium pricing point" nationally. "As we gravitate toward more normalized pricing, we find the 12-month strip of Southern California Gas Co. (SoCalGas) reflective of that. On an average basis today, this is one of the better price areas in the country."
There is a strong east-to-west push, and a strong north-south push "that are turning the country upside down," creating "incremental growth opportunities" along the Texas Gulf Coast, in West Texas and desert Southwest regions. All of this is significant, he said. "Whether it is looping of existing pipelines or construction of new lines, new capacity is going to be required in this part of the country to serve new growth and market demand."
SoCalGas gas acquisition manager Steve Baird said Wednesday on a separate panel that "down the road we may have the most expensive gas, but it will still be relatively cheap."
America's Natural Gas Alliance's (ANGA) Paul Smith, senior director for infrastructure, said the onslaught of robust onshore shale production virtually has made price volatility "a thing of the past." Shale's importance "is not just in contributing to long-term affordability for gas, it is equally important that it has meant the elimination of volatility for the most part."
Smith said he began working in the industry as a day trader and realized that lessening volatility has "taken some of the fun out of the industry because we just don't have the basis spreads to play with like we used to. But that is what shale has done, it has essentially eliminated price volatility except for a few places around the country that still have pipeline constraints."
On a global basis, Macquarie Securities Group's Vikas Dwivedi, global oil and gas strategist, said there are great opportunities but also great risks for U.S. producers, particularly for exporting natural gas liquids (NGL) and crude oil. There continues to be "big global growth in NGL production, so the U.S. producers are facing a lot of competition worldwide," he said. A key question is at what price can the U.S. continue to export its propane, ethane and other NGLs?
"For the last five years our data shows that light crude oil, ultra lights and NGLs have been outpacing heavy sour crudes [worldwide] that before were looked at as the benchmark for global oil supplies," Dwivedi said.
Overall, Macquarie is "quite bullish" on global oil prices staying above $100/bbl during the next few years, particularly Brent prices. "We think Brent prices will stay in the $105 or higher range," but West Texas Intermediate "is going to be a tale of two periods. The next two years we should see very good pricing -- $100-plus -- but after that things get very dicey because production just keeps growing, and U.S. refineries just can't take any more. You can't keep adding 1 million b/d year after year.
"Every place in the U.S. is already fully saturated, storage is full, and producers are sort of in a box," he said.