U.S. natural gas prices will average $5.00/MMBtu at the Henry Hub over the next five years, which is about 18% lower than the average price currently reflected by the New York Mercantile Exchange futures strip, Bentek Energy LLC said Monday.

"Improvements in drilling and completion techniques by many North American producers have been impressive. We've seen unprecedented growth in unconventional gas production, which has spawned significant pipeline construction and other infrastructure projects. These developments have altered gas price relationships across North America," said Bentek Managing Director Rusty Braziel. "We expect these trends to continue over the next five years. And while we see substantial demand growth ahead in the power sector, demand increases will not be enough to offset supply growth."

Last month Bentek CEO Porter Bennett outlined some of the achievements of gas producers in the development of unconventional plays (see Daily GPI, June 14).

Bentek's forecast covers 2010-2015. Over the previous five years gas prices averaged $7.06 at the Henry Hub, the firm noted.

"The Nymex futures strip through December 2015 currently averages $5.76," Bentek said. "The futures market has not fully adjusted to the fundamental changes that are expected to take place."

Producers will continue to drill in order to hold their leases -- despite low gas prices, Bentek said. This should drive gas production higher through next year. In 2012 Bentek expects that drilling to hold production will taper.

"Production is projected to grow 4.6 Bcf/d between 2010 and 2015," the firm said. "Risks to this growth include potential regulations imposing more stringent safety and environmental measures on drilling."

Canadian imports will continue to decline -- from 6.9 Bcf/d this year to 5.8 Bcf/d in 2015 -- as Canadian gas gets pushback from Lower 48 shale plays and as Alberta soaks up more domestic gas in aid of oilsands production, Bentek said.

Liquefied natural gas (LNG) imports to the United States will remain weak at about 1.5 Bcf/d on average over the five-year period, Bentek said, as Asia, Europe and other seasonal markets increase takes and domestic shale gas keeps U.S. demand sated.

According to Bentek, the power generation sector is poised for a structural shift as natural gas begins to capture market share from coal. An extended period of abundant gas supply at lower, stable prices is likely to lead to a new period of gas-fired power generation growth. Demand for gas among power generators is projected to grow to 21.4 Bcf/d in 2015 from about 20.3 Bcf/d this year, Bentek said. "That is only 1.1 Bcf/d of growth over the next five years compared to 3.2 Bcf/d of growth between 2005 and 2009."

Bentek's gas-fired power forecast is based on currently planned capacity additions, projected load factors and coal-to-gas switching.

"If gas prices remain low over the next two years, contrary to the current futures strip, gas-fired power additions are likely to increase even faster, so there's a significant risk that gas demand from power will be greater than the base-case forecast," Bentek said.

Economic recovery should drive industrial demand growth of about 1.5% per year through 2015, Bentek said, while residential/commercial demand is projected to grow 0.2% per year due to population growth and fuel-switching, offset by conservation and efficiency improvements.

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