Nick Snow
OGJ Washington Editor
WASHINGTON, DC, Oct. 14 -- The strength and pace of an economic recovery could be the single biggest variable in natural gas demand this winter heating season, the Natural Gas Supply Association said as it issued its annual forecast.
“This winter, we expect the state of the economy to potentially be the dominant factor affecting natural gas demand,” said NGSA Chairman Patrick J. Kuntz, who also is vice-president of natural gas and crude oil sales at Marathon Oil Corp. in Houston.
“Winter weather remains important, but the strength and pace of any economic recovery could be even more significant this year,” Kuntz said.
The National Oceanic and Atmospheric Administration has predicted near-normal to slightly warmer-than-normal winter temperatures in the coming months, he said. NGSA expects neutral pressure on gas prices based on record storage, overall flat demand, and production, which has remained relatively steady despite dramatically reduced drilling activity, Kuntz said.
NGSA anticipates that any economic recovery in the US in the next few months will be fragile, Kuntz told reporters at a briefing. “Unemployment is the looming question mark. Compared to last winter, however, we expect the economy to exert modest upward pressure on gas demand,” he said.
Demand outlook
Citing data supplied by Energy Ventures Analysis Inc., NGSA said it expects US gas demand to reach 75.2 bcfd this winter, slightly less than the 75.6 bcfd that was reached a year ago. It anticipates that demand will decline by 0.5%, compared with the 1.7% drop during the 2008-09 winter heating season, while annual electric power generation additions will total 6.8 Gw compared with 7.3 Gw a year earlier.
The forecast anticipates that industrial gas demand will increase slightly, residential and commercial demand will be flat year-to-year, and power demand will decrease slightly. “We saw levels of about 2 bcfd of gas substituting for coal this past winter so it’s still significant,” Kuntz said.
“A relatively mild summer in some parts of the country, combined with production which remained steady, has led to record storage,” Kuntz said. “It’s going to be an overhang, putting downward pressure on the markets this winter.” NGSA expects storage heading into the heating season to reach 3,822 bcf, compared with 3,412 bcf a year earlier. New storage capacity could reach 123 bcf this winter, up from 82 bcf in the 2008-09 heating season, its forecast said.
Kuntz said US gas producers have responded to reduced demand by curtailing their drilling substantially. NGSA’s latest forecast calls for annual well completions to fall to 18,800 this winter from 30,591 in 2008-09, and the averaging US rig count to drop to 786 from 1,535. It expects US gas production to average 55.7 bcfd this winter, up slightly from 55 bcfd a year ago, however.
Shale gas impact
“In spite of lower rig counts and fewer wells being drilled, shale gas activity has kept production relatively steady,” Kuntz explained. “Horizontal drilling is helping recover resources which were ignored 10 years ago. We’re seeing a fairly wide variation in forecasts for production this winter. Everyone is trying to get their arms around what’s going on in shale plays relative to well completions and rig counts.”
Access is less of an issue than it has been in previous years, he conceded. “It has slipped a notch or two as part of the message, but it’s still an issue. I don’t want to consciously take away from this country the ability to find resources, either offshore or onshore. State regulations are increasingly important,” he said.
Growing shale gas production could revolutionize the domestic industry since it is geographically diverse and could make the country less reliant on Gulf Coast and Gulf of Mexico supplies, which are vulnerable to hurricanes, Kuntz said.
“We don’t know if and when a pricing environment can affect shale gas production. I have to believe it can’t be ignored. But the long-term prospects for shale gas development are good,” he said.
Contact Nick Snow at [email protected].
File photo from PDVSA..
