Natural Gas May not be Cheap Anymore

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In the recent past as the shale gas drillers continued to explore and drill new wells and kept on breaking records with higher and higher production, caused the glut of natural gas resulting in a drastic dip in the prices. And these prices remained low for quite a few years. But the experts say, just like the oil markets have gone through a very painful phase that has lead to a drop-off in supplies, the market for natural gas is going through a similar period of adjustment.  Not only that, but the demand is on the continual rise, which is not the case of oil. Post Paris agreement and with the increasing awareness of severe effects of climate change, a wave of new gas-fired power plants is coming online. This is sure to result in a much tighter market for gas than we have seen in past few years.

Natural gas spot prices have always been volatile, but have more or less traded below $3 per MMBtu since 2014. With the prices hitting so low, companies pulled back drilling plans and focused more on liquids-rich and oil-heavy shale plays. But in spite of drillers having pulled rigs from the field, the gas output continued to rise, setting up new records along the way.  This happened in particular due to impressive advancements in drilling technologies and techniques. With it companies extracted more gas for lesser money and with lesser effort too. Another major reason that kept gas output on climbing was due to a lot of gas getting produced in conjunction with oil. The natural gas production peaked in February 2016, and since then is on the decline in the USA, production has shrunk by more than 5% and that’s substantial.

As per the International Energy Agency (IEA) latest report published in the first week of this month, energy prices are expected to continue their generally upward spiral in the years ahead if global energy policies by oil and gas producing countries remain the same as they are now. IEA also expects the rapid economic development in China and India, along with the consistent energy use in industrialised nations, will likely to strain the world’s ability to meet a projected rise in the energy demand of some 1.6% per annum until 2030.

With the present rate of consumption and nominal rise as predicted, the oil and natural gas resources are expected to supply the world for more than 50 years from now. But the agency also expressed deep concern that rising world energy demands will outpace the production, which will lead to the rise in the prices, though they will be volatile.

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