Future Prediction For Natural Gas

Main Line Valve

Credit: Glen Dillon / CC BY 3.0

The supply and demand of natural gas are starting to take effect in the market. The United States of America’s Environmental Impact Assessment found that the production from seven major shale basins should start to drop fast after reaching an all-time production. This is because of the depletion from legacy wells together with decline in new wells being drilled. Natural gas and oil prices are still very low, hence producers do not have to drill new wells. The difference in the energy prices is also making it harder for companies to plan and hedge their production. Despite the fall in production, natural gas prices and stocks have yet to respond and even the Environmental Impact Assessment is revising its price expectation. The stock marketers believe that the price will head to the right direction, but definitely not back to $4 per million Btu.

Natural gas producers are in a better position than oil producers, although the demand of both is a mixed bag. There are power plants moving from using coal to gas, thus, gas consumption will continue to rise. Energy demand in the United States being stagnant or slowly increasing, the demand of natural gas will increase taking share from other existing fuel. Natural gas will push up prices as the EPA greenhouse rules will not favor the growth of coal. Cheniere Energy will bring the first America LNG export facility online by the end of 2015. This will encourage more exports which in turn provide a demand pull for natural gas reserves drillers.

The reduction in the supply side should mainly help the producers who are fittest and best positioned. When fewer wells are being drilled with high production cost, the prices will definitely rise. It is advisable for investors to take opportunity for the future production declines and price increases.

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