07 October 2010 16:45 [Source: ICIS news]
By Joe Kamalick
WASHINGTON (ICIS)--Abundant supplies and increasing domestic production of natural gas are good news for US petrochemical producers in the short term, but they pose potential long-term problems for the chemicals industry and the broad ?xml:namespace>
The Natural Gas Supply Association (NGSA) reported this week that even though demand for natural gas during the coming North American winter season is expected to rise by 2.4% compared with last year’s cold season, US storage inventories are at near-record highs and gas production is expected to increase by 4% compared with winter 2009-2010.
That means that natgas supplies will be more than adequate over the peak demand winter season, and there will be little or no upward pressure on gas pricing.
The availability and pricing of natural gas is of key importance 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 NGSA said that it expects demand for natural gas will be greater than last winter, driven by increased consumption by utilities and manufacturing as the
“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.
The association’s outlook analysis said that the
“Overall demand form all customer sectors is projected to increase by 2.4% this winter, with the most growth seen in electric generation (7%) and industrial uses (5%),” the association said.
Despite that projected increase in demand, NGSA said it does not expect significant upward pressure on natgas pricing because gas supplies and production are high.
“Production is expected to increase and is approaching its highest level in decades,” the association said, “driven by onshore and shale activity.”
“Supply also will be greater due to strong domestic production, particularly of shale gas,” the outlook added.
The association said that domestic gas production over the winter months - usually November through March - is expected to be about 57.5bn cubic feet (bcf) per day, compared with the daily average of 55.2 bcf during last winter. That is an increase of 4%.
NGSA said that the nation’s inventory of stored natural gas was not expected to match last season’s record pre-winter levels, but the supply would be robust.
“Going into the winter heating season, it is projected that 3,700 bcf of natural gas will be in storage, compared to the all-time record of 3,800 bcf set last year,” the outlook said.
In addition, a nearly normal winter weather season is forecast, meaning that no unusual demand for home-heating gas consumption is anticipated.
High volume gas storage, increasing natgas production and a near-normal winter mean that gas prices likely will remain stable into 2011.
US natural gas prices have been around $3.75/MMBtu and are forecast to stay below $4/MMBtu in 2011.
$4 natural gas is good news for US petrochemical and chemical firms, even though that price range is well above the $1-$2/MMBtu that the industry enjoyed for decades until the 1990s.
Traditionally, US chemical companies have enjoyed a natgas feedstock pricing advantage over their naphtha-based foreign competitors, an advantage that is likely to continue.
Houston, Texas-based oil and gas analysis firm Rigzone said that oil has traded at more than 17 times the price of
“The oil-gas price ratio is expected to remain high as gas prices continue to be suppressed by growing
These forecasts paint a rosy competitive picture for US chemical makers, but they also could spell trouble in the long term.
With domestic gas supplies and production so high and prices comparatively low, there is little broad-based commercial or consumer demand for policymakers to resume oil and gas exploration in traditional
In the wake of the disastrous BP Deepwater Horizon rig explosion and resulting massive oil spill, the
The oil and gas industry complains that the Obama administration also is maintaining a de facto ban on shallow water oil and gas development in the Gulf by imposing a new and complex matrix of environmental, safety and equipment regulations and certifications for offshore drilling.
With abundant gas supplies and increasing onshore production, there is even less incentive for lawmakers to press for opening other resource-rich offshore areas in the outer continental shelf (OCS) regions on the country’s East and West coasts and along
Ultimately, however, the refusal or reluctance of US policymakers to restore Gulf drilling and begin development in largely unexplored offshore regions will work against US chemical and broader manufacturing interests.
In a study issued earlier this year, the Science Applications International Corporation (SAIC) warned that
And a study by the Massachusetts Institute of Technology (MIT) warned that growing domestic demand for natural gas amid restrictions on offshore development will make the
In that event, US chemical producers and other manufacturers likely will be paying much more than $4 for natural gas.
NGSA’s Horvath cautioned that current robust
“It would be irresponsible to put all our eggs in one basket,” he said. “We rely on natural gas from the Gulf, from onshore production, from
“That diversity and flexibility benefits and protects consumers,” he said, adding: “Looking to the future, we will need all of our energy sources to meet demand.”
NGSA’s member companies are integrated and independent producers of natural gas.
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