Natural gas prices will be rising over the coming four years, but it won't be by leaps and bounds, Deutsche Bank's chief energy economist said Thursday.
Adam E. Sieminski, who forecasts energy market trends for the investment bank's Global Markets Commodities Research, spoke at the 2010 Deloitte Oil & Gas Conference: The Road Ahead for Energy in Houston. At last year's conference Deutsche Bank was forecasting oil prices to average about $65/bbl in 2010, moving to $80/bbl in 2011. Gas prices were forecast to average about $6/MMBtu this year and through 2011.
Because of a resurgent economy, the oil price forecast was too low, he said. Oil prices now should average $78.50/bbl this year, increasing to $80 in 2011 and hitting $100 by 2015.
And gas prices? It may take years, not months, before natural gas prices average $6/MMBtu, Sieminski told the audience. Economists simply underestimated the impact of shale gas.
According to Deutsche Bank's new forecasts, gas prices should average $4.40/MMBtu this year. In 2011, gas prices are forecast to gain only 10 cents to average $4.50. By 2012 gas prices will increase by about 25 cents a year, followed by $5.50 in 2013 and $5.75 in 2014, until 2015 when prices are forecast to average $6.00/MMBtu.
Shale gas was beginning to change the outlook for domestic supplies in 2009, said the economist. But output has been well above expectations, responding in a big way to innovations from horizontal and pad-based drilling, multi-stage hydraulic fracturing (fracking) and lateral offset drilling.
A lack of oilfield services backed up some well completions this year, but that's "starting to clear and high-volume shale plays appear resilient even in a lower gas price environment given hedges and cash requirements," Sieminski said, pointing to Energy Information Administration data.
U.S. wet gas production in June fell by about 1% from May, but the drop was "mostly attributable to temporary events," including maintenance and storms. "July recovered slightly and there are few early signs of slowing."
North American shale gas production "could be nearly 10 Bcf/d this year -- and over 30 Bcf/d by 2030," said Sieminski.
Using an analysis of the shale plays by Wood Mackenzie, Sieminski said the biggest shale gas contributors this year are in order the Barnett Shale, Fayetteville, Haynesville, Woodford, Marcellus, Montney, Horn River and Eagle Ford. By 2030, however, the biggest shale production is expected to be led by the Marcellus Shale, followed by the Haynesville, Barnett, Horn River, Montney, Fayetteville, Woodford and Eagle Ford.
"Shale gas keeps going like the 'Energizer Bunny,'" he said, because of five factors:
Global shale prospects may provide even more impact on gas markets, said Sieminski.
"Development of just a small proportion of this resource could dramatically change local gas markets with implications for global gas dynamics," he said. "Specifically, it could reduce import requirements, provide additional export sources and impact global gas pricing."
Besides the gains by shale gas, Deutsche Bank also is watching the uptrend in U.S. NGL production.
"We've seen a remarkable climb in U.S. NGL production since January 2006, briefly interrupted by hurricanes Ike and Gustav in late 2008," said Sieminski. "With the 2011 calendar strip for oil selling at $85/bbl and natural gas going for $4.30/MMBtu, gas drilling resources are moving to those fields with the highest NGL content.
"This is the allure of the Marcellus near Pittsburgh and the Eagle Ford in South Texas...Anecdotally we can see that there has been a shift from markets like Louisiana's Haynesville and the Midcontinent region to more liquids-rich plays like North Dakota's Bakken and Eagle Ford."
More oil shale plays will attempt to "clone" the Bakken Shale success, he predicted.
Because of the success in transferring the use of multi-stage fracking to shale oil, "an intensive search for other formations where this technique will work is under way. The Niobrara in Colorado and the Monterey in California come to mind...and we expect there will be more."
The coming year will bring "challenges and hard choices," and the "path forward..." will either be one of "confrontation or compromise," the economist said. The "green" jobs touted for the past two years are expected to be "largely aspirational," and will have little effect in improving the U.S. economy. Meanwhile, efforts by Congress to reduce the federal deficit "will choke subsidies with no other drivers." Congressional support in 2011 "for almost anything is problematic."
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