The EIA’s most recent short term energy outlook puts natural gas prices at $2.65/MMBtu for 2016 and $3.22/MMBtu in 2017. These projections come at the heels of a rollercoaster ride of high production and low trading prices. Production reached an all-time high of 80.2 billion cubic feet per day last September, quickly followed by a 16 year low price of $1.93 per million British thermal units (MMBtu) in December. This represented a 6% increase in production from 2014 and is expected to drop to 0.7% in 2016.
Despite stunted production growth, demand will continue to expand. ExxonMobil’s latest energy outlook shows global demand growing 25% going into 2040. The company believes that “all of the world’s energy sources will be needed to meet rising demand to 2040, but there will be a marked shift toward cleaner fuels, particularly natural gas,” according to the report. The US has over 400 Tcf in proven natural gas reserves to meet the growing demand, with a projected 65% increase in production. Given the versatility and clean burning nature of natural gas, the EIA predicts the US to be a net-exporter of natural gas mid-2017 (the first time since 1955).
A major part of the natural gas charge will be America’s liquefied natural gas capabilities. The country’s vast unconventional plays provide the perfect LNG playground, with over 110 current LNG plants. API showed the implications of LNG within the US in their study with ICF International up until the year 2035. Not only would LNG lead to natural gas exports, but it would also add $10 – $31 billion to state economies such as Louisiana, Texas, and Pennsylvania and $2.6 – $5 billion to state economies with large manufacturing bases of steel, cement, and other commodities. Both groups of states could see 60,000 – 115,000 and 30,000 – 38,000 additional jobs respectively. The US currently has 11 LNG export terminals approved and awaiting construction.
ExxonMobil however still believes in the energy deliverability of conventionally produced natural gas. Their energy outlook report goes on then say, “We expect conventionally-produced natural gas to remain the cornerstone of supply, meeting two-thirds of global demand in 2040”. The US alone consumed 75.5 Bcf/day in 2015 and is expected to grow to 76.6 Bcf/day in 2016 and 77.2 Bcf/day in 2017. While natural gas consumption in the electric power sector is expected to decrease by 1.4% by 2017, gains in fertilizer and chemical industries, residential, and commercial sectors will continue to push demand.
Still not everyone is in agreement. Analysts Charles Robertson II and Shawn Lockman at Cowen & Co. have “a bad feeling about natural gas for 2016″ and don’t expect prices to rebound until after 2017. The firm expects demand to increase by 8.25 Bcf/day over the next three years but “see $2.75/Mcf in 2017, reflecting the coal-to-gas switching demand returning to coal.” Whatever prices may be, total energy resources will still have to supply the 580 quadrillion British thermal units (Btu) of energy per year. No one has the right crystal ball formula yet to see the correct future prices but demand is certainly growing and will continue to do so.