NGSA: ‘Neutral pressure’ on gas prices expected this winter

Based on an analysis of the economy, weather, demand, production, and storage, the Natural Gas Supply Association expects flat price pressure on the natural gas market compared with last winter, NGSA said in its 13th annual Winter Outlook 2013-14.

NGSA used data from Energy Ventures Analysis (EVA) for its demand and supply projections and data from IHS Global Insight for its economic projections.

“When NGSA weighed all the different pressure points, the picture that emerged for the upcoming winter is one of quiet growth in supply as well as in demand for natural gas,” said Greg Vesey, NGSA chairman and Chevron Corp. vice-president of gas supply and trading. “The stability in natural gas is great news for consumers,” said Vesey. “When all key supply and demand factors are combined, we expect neutral pressure on prices compared to last winter.”

EVA projects similar levels of combined gas demand this winter vs. last winter because of similar weather and economic conditions. Demand from the industrial sector is expected to increase 3.5% from last winter, EVA forecast. The development of petrochemical, fertilizer, steel, and gas-to-liquids industries will sustain healthy growth in industrial demand over the remainder of this decade, EVA said.

Residential and commercial sector demand is projected to be flat, while demand from the electric power sector is expected to decline slightly, due to less fuel switching from coal to gas in power plants this winter compared with last. “Coal-to-gas switching is expected to continue for a sixth straight winter, but switching is forecasted to average 4.2 bcfd rather than last winter’s near-record amounts,” said Vesey.

On the supply side, another winter of strong production and storage levels is expected by NGSA’s outlook. “The shale revolution has ushered in a remarkable era, as evidenced by dramatic growth in production over the last 5 years. This winter’s supply is expected to be even more robust than last year, but characterized by subtle changes that are indicative of the ability of the competitive gas market to adjust to customer’s needs,” Vesey said.

Vesey said, “For example, a solid 8% of this winter’s production is expected to come from associated gas, a number that has been quietly growing for four consecutive winters. The growth of associated gas explains how natural gas production continues at strong levels despite a 28% drop in the number of gas well completions. We expect associated gas to continue to be a key component of winter supply as oil drilling in the Bakken and Eagle Ford shales continues and new gas infrastructure is put in place to reduce gas flaring.”

Vesey added, “Abundant shale gas has even affected storage patterns. Since 2009, we’ve seen the peak date for storage inventories become a moving target, shifting by a week or more on average to a later peak in mid-November. The proximity of Marcellus shale gas to consuming regions in the East has changed the way the market uses storage.”

Vesey concluded, “The important takeaway is the strength and responsiveness of natural gas supply. Since the onset of shale production on a large scale, we’ve had winter after winter of level price pressure.”

Contact Conglin Xu at conglinx@ogjonline.com.

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