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Whither Northwest Natural Gas Prices?

July 30, 2012
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The lowest natural gas prices in a decade -- driven lower in large part by production from North American shale plays -- are behind many of the decisions being made by regulators and energy companies in the Northwest, but where those prices are likely to go next is a matter of dispute.

"One thing's for sure: $2[/Mcf] is not sustainable for natural gas," Dan Kirschner, executive director of the Northwest Gas Association, told the Oregon Public Utilities Commission (PUC) during the PUC's annual natural gas outlook workshop Thursday. "We've seen the results of $2 natural gas. Prior to going into this summer, we saw lots of projections that unless something dramatic happens -- storage is filling up so fast -- we could see gas for under $1 next fall. We've had a very hot summer so far, and we've resolved some of that storage issue, so there seems to be space, and that's why you've seen prices firm up."

But "low prices can persist despite assertions that they are not sustainable," said Randy Friedman, gas supply director at Northwest Natural Gas.

"People can say low prices aren't sustainable, but if you look at the past...there was a long period were low prices were sustainable, and then they weren't. And there wasn't a lot of prior warning. So the question is, are we going back into an era of low prices, or are we likely to see a continuation of the volatility..."

Northwest Natural believes there are more factors to influence an upward movement of gas prices rather than staying flat, and there is little to suggest additional downward price movement, Friedman said.

The top natural gas issues facing the Pacific Northwest are the price and available supply of natural gas coming out of Canada, the Rockies and North America's shale plays, and the potential impacts of liquefied natural gas (LNG) exports, according to PUC staff. "Canadian exports of natural gas to the United States are declining and will continue to do so," they said, and the United States' ballooning production has made LNG imports into the country unnecessary.

Moderate winter temperatures and ballooning natural gas storage levels made the Lower 48 "a big winner" this year, according to Steve Harper of Avista Corp. Tumbling natural gas prices have prompted many generators to switch fuels.

"We are using a lot more gas this year for electric generation...I think for the first time in history coal and natural gas are producing the same amount of power," Harper said.

"Just as shale was a real game-changer in terms of pricing, looking forward, LNG may be one of those too," Harper said. "If we start exporting everything, then that's going to create a better equilibrium in supply and demand. While the economics are there to promote the export of LNG, that one's going to be a political issue, I think, and it's going to be fought outside of the economics."

Energy demand in the region is expected to increase about 1% annually through 2021, Kirschner said. "This is a little bit lower than it was last year...just not very dramatic, pretty stable," he said.

"From the gas side of things we're concerned about the construction for the projection that there's going to be upwards of 3,000 MW of peak generation that's needed...If we see 3,000 MW of peak generation capacity, our concern is what's the impact of that on the natural gas system?" Kirschner said. "If we need 1,500 MW or 2,000 MW of generation capacity on a day, especially in the wintertime when we're already flowing loads, we just want to make sure that we're paying attention...We don't have the same kinds of issues that the Northeast does, but we want to make sure we don't get to those kind of issues."

Oregon's natural gas companies will submit filings to the PUC this summer to request adjustments to their rates in the fall to reflect expected changes in wholesale natural gas prices. Natural gas customers can look forward to lower gas prices during the 2012-2013 winter, company representatives told the PUC, though they did not release percentage estimates.

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