Even with strong signs that global economic weakness will persist through 2009, investors in energy share hope for an oil price rebound sooner rather than later, and energy stocks staged an even bigger move than the overall market in the last two rallies But the fixation on oil tends to obscure the prospects for the natural gas market.
An article in Platts (hat tip reader Michael) suggests that oversupply will lower natural gas prices (currently at $6.79 per MMBtu) to the %5 to $6 range. A mild winter could lead to prices as low as $4/MMBtu.
Oversupply from shale gas production success will keep natural gas prices in the $5 to $6/MMBtu range for the next five years, said Jen Snyder, head of Wood Mackenzie North American Gas Research.
“We are now in a position of significant potential oversupply brought about by the huge success experienced in the development of shale gas plays,” Snyder said …
While “most commentators are pointing towards prices settling at the marginal cost of the most expensive shale plays, we think this is a mistaken reading of the current and future environment,” Snyder said. “Simply stated, there is no requirement for the rapid near- to mid-term development of some of the more expensive or challenging shales such as the Marcellus or Horn River; the market can be adequately supplied without these volumes.”
Snyder said there are “sufficient volumes available at a development break-even price of $5.50[/MMBtu] or below for the market to balance.”
Wood Mackenzie’s conclusions through the year 2014 take into account demand declines from a prolonged recession through the fourth quarter of 2010, new wind- and coal-fired capacity to serve power loads and a significant drop in drilling in response to lower prices, she explained…..
Furthermore, that price range is not a floor, Snyder said.
While a severely cold winter could further tighten the market, a mild winter conversely could exacerbate the current oversupply and lead near-term prices into the $4/MMBtu range, she said. The price forecast also assumes a 1.5 Bcf/d switch from coal- to gas-fired power generation. “If this fails to materialize, due to collapsing coal prices, this would further add to short-term price weakness,” she added.