(For use by New York Times News Service Clients)
c.2013 Houston Chronicle
A chillier-than-normal November spurred Americans to use a lot of natural gas for heating, said Mary Barcella, director of North American natural gas research at IHS CERA.
As a result, supplies of natural gas in storage are down 16 percent from a year ago, according to the U.S. Energy Information Administration.
Natural gas for February delivery rose 6 cents to $4.43 per million British thermal units in New York Mercantile Exchange trading Monday.
Still, prices for natural gas probably won't rise much higher than they are now, even by 2030, Barcella said, and coal-fired power plants are a major reason.
When natural gas prices are low, power producers burn more natural gas and less coal, but as natural gas moves toward $5, more coal plants become profitable, she said.
''When the gas prices go back up ... coal will go back online for power generation," Barcella said. "So it's that dynamic that's going to keep the gas prices from going too high."
Natural gas drilling is also a factor, said James Sullivan, a senior analyst for investment research firm Alembic Global Advisors.
As natural gas prices get closer to $5 per million British thermal units, oil and gas companies are likely to deploy more rigs to drill for the fuel, adding to supply and pushing prices down again, Sullivan said.
''Fair price for natural gas is probably somewhere between $3.50 to $4.50," Sullivan said. "The thing that will move that outside of that band will be probably winter weather. A very cold winter can push it up to a $5 range."
Sees a limited range
Barcella said a price between $3.50 and $4.25 is more likely, even looking ahead 16 years and even as new power plants, chemical plants and liquefied natural gas export terminals increase demand.
''Certainly from now to 2020, and really now to 2030, we think that prices will cycle within that range with some temporary excursions above or below," Barcella said.
Natural gas prices trended mostly down after rising above $13 in 2008, dipping below $2 for a few days in 2012 as the boom in shale drilling and pipeline congestion led to supply gluts.
Companies typically pulled back on natural gas drilling operations at prices below $3.50, but they added rigs in 2013 as the price drifted toward $4.50, a rate at which producing gas is more profitable.
Shift in focus
Relatively low prices have forced many energy companies to reduce or abandon efforts to produce mainly natural gas. They have shifted their focus to drilling wells that produce higher-priced oil and other liquids, along with some gas.
The main area where a focus on natural gas remains profitable is the Marcellus Shale play in the northeastern United States, where drilling is cheaper because wells don't have to be as deep as in other regions, Sullivan said.
Officials of Oklahoma City-based Chesapeake Energy Corp., the nation's second-largest natural gas producer behind Exxon Mobil Corp., have said Chesapeake probably won't attempt to find and produce large quantities of natural gas at prices below $5.
But with energy companies drilling wells that produce natural gas along with some oil, the fuel should be in large supply. And companies have shown a tendency to increase natural gas production at times when prices have crept closer to $5, Sullivan said.
Supply and demand
More companies will produce gas as prices rise, bringing more supply into the market and keeping prices flat.
''We think the resource base in this country is sufficient to meet the new demand without a strong increase in prices," Barcella said. XXX - End of Story