In the gas market, producers have maintained output despite a decline in rig counts due to high yields from the shale plays, according to ICF’s report. Also, the lack of gas processing capacity in the Marcellus natural gas production basin, located in the Northeast US, has resulted in higher volumes of marketed gas because of “ethane rejection.” This strong supply environment, combined with relatively weak demand due to mild summer weather, has resulted in gas prices of $3.50 per million British thermal units (MMBtu) or below throughout most of the US.
While ICF expects gas prices to remain soft for the next 18 to 24 months, it expects prices to firm rapidly as demands from new petrochemical plants, liquefied natural gas (LNG) export terminals, and pipeline exports to Mexico start ramping up in 2015. These new demands, combined with increases in demand resulting from expected coal plant retirements, will place significant upward pressure on gas prices and increase the potential for price volatility through the end of the decade.
However, the ICForecast Energy Outlook projects an increasing number of new gas builds to meet reserve margin needs due to nearly 60 GW of coal retirements projected over the next four years. The impact of coal generation units retiring or becoming more expensive to operate will drive power prices upward in the Midwest and Southeast where most coal capacity is located.
Although natural gas prices are more stable now than they have been in a decade, energy managers can still save their companies big money by creating a procurement strategy and timing their purchases, according to speakers at a recent Energy Manager Today webinar, What Energy Managers Need to Know About Procuring Natural Gas (available on demand).