Natural gas prices will stay stable in a low range for the next five years across North America, and Canadian producers will suffer the most, the Calgary capital of the western industry heard Wednesday.
“Growth in gas demand is not robust enough to keep pace with supply,” said Rick Margolin, manager of Bentek Energy LLC’s west gas fundamentals group. The glut will continue undermining the long-standing mainstay of Canadian suppliers, exports to the United States, he said.
Bentek’s 2013 North American gas forecast includes a drop in Canadian sales to the United States down to 5.4 Bcf/d, a volume 37% below pipeline exports of 8.6 Bcf/d five years ago in 2007.
“Unfortunately for Canadian suppliers, we really don’t see this trend reversing,” Margolin told a shale oil and gas symposium held in Calgary by CI Energy Group.
Abundant U.S. shale production will both generate potent competition across U.S. markets and continue to spill north across the border as bargain-priced exports to central and eastern Canada, Margolin said. The northeastern U.S. is well on its way to becoming a net gas exporter thanks to its rich Marcellus Shale formation.
The Bentek forecast anticipates growth by about 10 Bcf/d in U.S. production capacity over the next five years, up to 88 Bcf/d as of 2017 compared to 79 Bcf/d this year.
Demand is expected to grow by about the same volume, rising only to 88 Bcf/d and therefore falling short of changing the saturated markets that drove prices down as low as the US$2-3/MMBtu range in mid-2012.
The outlook would be much worse if persistently low prices since 2008 had not brought on a revival of gas sales to U.S. industry and power generation, the Bentek forecast suggested.
Margolin said demand monitoring by his firm currently counts more than 70 expansion projects, led by a revival of U.S. petrochemical and fertilizer plants that were all but driven under or prompted to move new development to cheaper overseas locations by previous highs on the North American gas price cycle. “We’re seeing a restoration of industrial demand.”
In power generation, “gas is definitely priced to beat coal out of the market,” Margolin said. During the severe gas price low when gas hovered around US$2.68/MMBtu in 2012, Bentek calculates that power plant consumption rose by 5.2 Bcf/d. At a projected average of US$3.63/MMBtu this year, the energy economics firm expects power station substitution of gas for coal to be 4.8 Bcf/d.
Bentek demand surveys also record current construction of 19,293 megawatts of new capacity at power plants, generating an increase of 1.7 Bcf/d in gas consumption by the electricity sector.
But gas prices will take until early 2014 to recover into a range just short of US$4/MMBtu, the Bentek projections said.
A further significant increase, to US$5/MMBtu is only expected to happen when leaders emerge and make it into service from the current flock of U.S. and Canadian liquefied natural gas (LNG) export projects, creating an outlet for the North American supply surplus.
Much of the persistent growth on the supply side is an unintended side effect of aggressive drilling for premium-priced light oil and its immediate hydrocarbon cousins, natural gas liquids, Margolin said. Gas associated with the scarcer, more valuable fossil fuels already accounts for a majority of the glut’s growth in the teeth of poor prices and cuts in drilling programs.
Although “tight oil” or shale liquids are expensive development targets, Bentek calculates that they remain attractive as long as prices stay above US$70/bbl. The market would have to drop into the US$50/bbl area for a lot of plays to lose their attraction, Margolin said.
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