North American natural gas prices are unlikely to improve significantly before the end of 2011, Moody’s Investors Service said in a report Tuesday.
Production overcapacity and limits to how much producers can scale back their operations has combined with inventories that are “still far higher than normal,” Moody’s stated. However, chemicals producers and general manufacturing companies, which tend to rely on gas, “will enjoy significant advantages over the next 12-18 months,” said Moody’s Managing Director Steven Wood.
“Low natural gas prices will continue having a negative impact on many exploration and production and natural gas drilling and related oilfield services,” Wood said. “For others, such as midstream entities, LNG [liquefied natural gas] companies, refiners and regulated pipelines and distributors, the effect on revenues will be less noticeable.”
Weak gas prices affect different industries in different ways, according to Moody’s. Low prices “tend to hurt the companies that produce gas, while those that buy gas, especially makers of chemicals and manufacturers, have significant reductions in costs.” Some power generators and other industrial users are able to substitute natural gas with coal for fuel, but the coal industry is “unlikely” to see a huge impact from low gas prices, unless gas prices fall below $4.00/MMBtu, the report said.
In Canada, the gas-producing regions “may see their budgets pinched by reduced royalties due to low gas prices,” said Wood. However, in Latin America, including Mexico, the North American gas grid plays little part in business practices, he said.
“Local price caps and regulatory intervention should keep the gas-rich nations of Latin America quite indifferent as well,” Wood said.
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