With gas storage caverns bursting, strong production despite drilling cutbacks, and mild weather expected, "a fragile economic recovery" is the only positive for gas prices this winter, the Natural Gas Supply Association (NGSA) said last Wednesday.
The Washington DC-based trade association, whose members account for about 30% of U.S. gas production, predicted in its annual Winter Outlook that other factors influencing gas markets will be relatively flat compared to last winter.
"This winter we expect the state of the economy to potentially be the dominant factor affecting natural gas demand," said NGSA Chairman Patrick J. Kuntz. "Winter weather remains important, but the strength and pace of any economic recovery could be even more significant than weather this year."
According to the National Oceanic and Atmospheric Administration (NOAA), this winter is expected to be normal to slightly warmer than normal, Kuntz told reporters at a press briefing. [NOAA issued its own winter outlook last Thursday (see related story).] Demand from industrial, commercial and residential consumers is expected to be similar to last winter as well, he said. However, demand from gas-fired power generators could offer comfort to gas bulls.
If gas prices remain low, power generators may continue to opt for gas over coal as they have been doing much of this year (see NGI, Sept. 21), NGSA noted. "Switching from coal to natural gas has averaged approximately 2.7 Bcf/d and has persisted longer in the year than is typical," the association said.
Kuntz, who is also vice president of natural gas and crude oil sales for Marathon Oil Corp., acknowledged that gas storage reached a record high Oct. 1 (see NGI, Oct. 5) and will continue to climb as winter approaches, placing downward pressure on prices. Despite the abundant stocks, gas production is tracking last year's levels, Kuntz said.
Using data from consultant ICF International, NGSA said overall production would be 55.7 Bcf/d this winter, which the association said is very similar to last winter.
"Although drilling and well completions have slowed, NGSA anticipates similar production to last year because of the onset of increased production from new shale resource plays and the inherent lag between drilling decline and production response," Kuntz said. "In the short term, the pace of shale development may well be impacted by the price environment. But the important takeaway is the long-term contribution as new shale resource plays produce more natural gas. The abundance and accessibility of shale gas -- made possible through technological breakthroughs in drilling and completions -- have revolutionized the industry."
Kuntz used the platform of the outlook announcement to repeat the industry's message of gas abundance, which it hopes will ring in the ears of lawmakers if and when they ultimately produce climate change legislation. "Estimates of the natural gas resource base have tripled since the Potential Gas Committee first published its report in 1966," Kuntz said. "In the last two years alone they've increased 39%...Quite honestly, it wasn't that long ago that I can remember talk about having reached peak gas..."
It also wasn't that long ago that another trade association was formed to tell the natural gas story; America's Natural Gas Alliance (ANGA) came to be in June to emphasize the country's abundant gas supply, despite the existence of NGSA, which has "supply" in its name (see NGI, Sept. 7).
Asked about the number of associations representing the gas industry, Kuntz emphasized the many sectors that make up the business, from major and independent producers all the way down the value chain through the midstream to local distribution companies and end-users. He said each segment has its own perspective on the industry but lately -- in the last six months or so -- the various segments are coalescing around the message of gas abundance.
"I think the industry has gotten around this message and they are carrying it fairly consistently, that the resource base exists and natural gas should not be ignored," he said. "I look at whether it's NGSA, IPAA [Independent Petroleum Association of America, ANGA, API [American Petroleum Institute], you name the [association]...AGA [American Gas Association], INGAA [Interstate Natural Gas Association of America], I think they'll all rally around that message, and they have.
"Natural gas is not a bridge fuel. I cringe when I hear someone say natural gas is a bridge fuel. We really see natural gas as a critical component to an overall solution. I'm not talking about a bridge to a solution; I'm talking about the solution."
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