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Natural Gas Price Outlook – What History Tells Us to Expect

Dennis Moran's picture
Principal Energy Cost Management Consulting LLC

Dennis Moran has over 40 years of diverse experience in the energy business. The first half of his career was devoted to developing and commercializing emerging energy technologies.  The second...

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  • Nov 14, 2022
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In the last 50 years we have experienced 2 complete natural gas (NG) price boom/bust cycles.  The 3rd began in 2021.  The latest increase is similar to the 2 earlier ones in many respects, but certain new events and new conditions will affect the current cycle.

Natural gas (NG) is a critically important resource.  It supplied 32% of the energy consumed in the US in 2021 and it was the fuel for 38% of the electricity produced.  All segments of our society rely on natural gas directly or indirectly.  Hence NG price increases will ripple throughout the economy.

This report identifies the factors that drove prior major price changes and shows how NG markets have evolved since the first energy crisis in the 1970s.  It then reviews how these factors and other key concerns will affect prices in the future.  The factors addressed include weather, NG production rates, exports, power generation, electrification, regulatory and environmental constraints as well as the strength of the economy.

There is too much uncertainty to reliably predict future NG prices and no attempt is made to do so.  Rather, the goal of this report is to provide a basic understanding of natural gas market dynamics and the factors that will drive price changes.  This information can be used to help develop planning scenarios and to provide a better understanding of how changes in the economic, political and social environment will affect prices.

While no attempt is made to predict prices, there are some significant conclusions that can be drawn from current conditions.  Demand for NG will remain strong due to growing use of NG for power generation, rapidly rising exports of liquified natural gas (LNG) and stable usage in residential, commercial and industrial applications. NG production has recovered to pre-Covid shutdown levels, but multiple constraints make additional large increases unlikely in the near-term. Continued high demand combined with constraints on expanding production will keep upward pressure on prices.  Given that supply growth will be limited, the only feasible triggers for a sustained price decline are a much warmer than normal winter and/or a major economic downturn.

Discussions
Mark Silverstone's picture
Mark Silverstone on Nov 14, 2022

As you suggest (sort of), there is a bust coming at some point in the future. But it is certainly not on the visible horizon. 
One factor to consider is that a great deal of infrastructure for liquefication, transport, bunkering and re-gasifucation is under development. It will exert downward pressure on prices. 
The report suggests this:

At present (fall 2022), there are 4 operating LNG export facilities, 2 under construction, 13 approved by FERC and 4 proposed facilities being considered by FERC.  It is uncertain how many of the approved facilities will be built.  Nevertheless, liquefaction/export capacity is expected to increase from 14 Bcf/day at the end of 2021 to 15.9 at the end of 2022, around 20 by the end of 2025 and around 30 by 2030.  

I think the estimate on growth of exports is a low one. But, as you say, there are many factors that impact price, making prediction of price very difficult indeed. 

Dennis Moran's picture
Dennis Moran on Nov 15, 2022

I see 2 possible scenarios that could lead to a short-term NG price bust.  The first is a severe global economic downturn that rapidly cuts demand.  We appear to be near the peak of a debt supercycle and serious cracks are appearing in the financial system.  2008 showed how quickly the economy can deteriorate when trust in counterparties evaporates.  The next crash is likely to be worse.

The 2nd is overbuilding of LNG export facilities.  The numbers you copied show the huge increase underway in the US.  I seriously doubt supply will be able to keep up with this capacity given 1) rapid depletion of shale wells, 2) high cost of shale & essential infrastructure development, 3) strong domestic demand for power gen and other uses, and 4) extreme hostility of government agencies and environmental groups.  However, total global NG reserves are big and other countries also will be building a lot of LNG capacity.  Once built they are sunk cost.  If a global glut develops, prices will decline to near the marginal cost of production.  I do not have much info on non-US reserves, so I cannot assess how serious that possibility is.

Dennis Moran's picture
Thank Dennis for the Post!
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