High US natgas supplies make winter pricing spike unlikely

05 October 2010 21:57  [Source: ICIS news]

WASHINGTON (ICIS)--The US has abundant supplies of natural gas for the coming North American winter season, and prices will hold steady despite increased fuel demand from electric utilities and industry, energy sector officials said on Tuesday.

The availability and pricing of natural gas is important to US petrochemical producers and downstream chemical manufacturers because they are heavily dependent on natgas as both a feedstock and power fuel.

In its 2010-2011 winter outlook analysis, the Natural Gas Supply Association (NGSA) said that overall demand for natural gas is likely to be 2.4% higher this winter than in the 2009-2010 cold season, due to increased consumption by utilities and manufacturing as the US economy continues a modest but steady recovery.

“The most growth will be seen in electric generation (7%) and industrial uses (5%),” the association said. “We expect to see industrial demand coming back strong, and we also expect to see coal-to-gas fuel switching persist through the winter, if prices remain competitive,” said association president Skip Horvath. Fuel switching is the growing trend among electric power companies to convert coal-fired generation to natural gas in order to avoid the higher carbon emissions of coal.

“Fuel switching has increased by 10% since it began in 2008 and has continued because of competitive natural gas prices,” Horvath said.

Despite that projected increase in demand, NGSA said it does not expect natgas prices to rise significantly because supplies and production are high.

“Production is expected to increase and is approaching its highest level in decades,” the association said, “driven by on-shore and shale activity. Supply also will be greater due to strong domestic production, particularly of shale gas.”

NGSA said that the nation’s inventory of stored natural gas was not expected to match last season’s record levels, but the supply would be robust. In addition, a nearly normal winter weather season is expected, so no unusual demand for home-heating gas consumption is anticipated.

US natural gas prices have been around $3.75/MMBtu and are forecast to stay below $4/MMBtu in 2011. The US chemicals industry faced a feedstock crisis in the winter of 2005-2006 when short supplies of natgas, high demand and hurricane damage to gas infrastructure pushed spot prices to $15/MMBtu.

NGSA’s member companies are integrated and independent producers of natural gas.

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