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Shift in natural gas demand seen supporting prices

New sources of natural gas demand, mostly from outside the United States, will help support prices above $3/MMBtu in the coming years, according to a panel of experts speaking at the LDC Gas Forum Northeast.

"In general, we're really going to be tied to the export side of the equation," Meera Bagati, manager of market analytics with NextEra Energy Resources, said June 5. "In the last six or seven years we've been very U.S.-centric. We focused on supply and demand but it has all been within the U.S. Now we're going be tied more to the international factors."

Bagati said that in the past 10 years, U.S supply has grown 45% while demand has climbed only 11% with the surplus gas being dumped into the electricity market. However, other outlets of demand will help sop up the supply in the next decade as NextEra sees total demand and exports rising 11.3 Bcf/d, from 74.9 Bcf/d in 2016 to 86.2 Bcf/d by 2025. Of this new demand, 0.6 Bcf/d will come in the residential/commercial sector, 3.2 Bcf/d will come from industrial demand, 1.8 Bcf/d in exports to Mexico and a massive 9.6 Bcf/d from increased exports of liquefied natural gas, all while power demand for natural gas drops 4.0 Bcf/d.

Bagati noted that while demand is set to grow 11.3 Bcf/d through 2025, supply in the Northeast alone is set to grow 15.6 Bcf/d in that time frame, which will serve to keep prices muted.

However, not all of the panelists agreed on price implications in the coming years. Luke Jackson, senior energy analyst at S&P Global Platts, highlighted a "growing gap between U.S. demand and Northeast supply" helping to support higher prices.

"Gas prices in our view cannot stay sub-$3 as the current NYMEX [forward curve] shows. They do need to rise, in essence to incentivize drilling outside the Northeast in higher-cost dry gas plays," he said.

Jackson noted that breakeven gas prices are near $2/MMBtu in the Marcellus region and below $3/MMBtu in the Utica but near $3/MMBtu in the Haynesville and even higher in the Fayetteville and Barnett regions.

"I think the market expects that the Northeast, Marcellus and Utica won't be able to supply all of our demand and that's why [the NYMEX forward curve through 2022] is trading below $3/MMBtu," he said. "We don't necessarily expect all of this capacity to fill up immediately. We think it's going to take time and in the interim, until we get this new demand, we do believe you need more gas from the higher cost breakeven plays."

In contrast to the NYMEX forward curve, BENTEK, a unit of S&P Global Platts, expects the monthly average spot natural gas price at Henry Hub will hold above $3/MMBtu for the foreseeable future and will rise to a $3.50/MMBtu to $3.75/MMBtu range by 2021.

S&P Global Platts and S&P Global Market Intelligence are owned by S&P Global Inc.