5-6 years ago, natural disasters such as Hurricane Harvey and Irma would have wreaked havoc on energy markets, especially natural gas. In stark contrast, the graph below confirms that electricity and natural gas prices held firm at historically low levels despite recent events. What does this portend for the future?
Demand Is The Driver
Demand has now surpassed supply as the major driver in current and future markets, as the shale revolution has made the United States the largest natural gas producer in the world. In addition, we are now producing crude oil at levels comparable to Saudi Arabia, and we are the largest exporter of propane and refined petroleum products in the world. In short, the US is leading the way in the global Hydrocarbons Market.
Shale gas production is a major factor in this success story: the US currently has seven major shale gas regions. According to the Energy Information Administration, (www.eia.gov) the Marcellus Shale region -predominantly West Virginia and Pennsylvania – provides about 38% of US shale gas production.
Will Greater Demand for Natural Gas Drive Prices Higher?
Natural-gas-fired generation has now surpassed coal generation, with nuclear-powered generation a distant 3rd. Renewables collectively account for roughly 15% of generation in the United States. (Pie chart courtesy of EIA)
Natural gas generation is expected to continue to grow, widening the gap as the lead source of electricity generation. Three factors contribute to this trend: 1) EPA regulations that favor natural gas over coal; 2) The surplus of natural gas; 3) Currently lower cost of natural gas.
From 2012 to 2017 the demand for US natural gas supplies has increased steadily with electricity generation, industrial, residential, and commercial use driving demand above 80 bcf/day.
As aging nuclear plants close, and with no plans of building new nuclear generation, the demand for natural gas for generation will continue to place significant upward pressure on future US natural gas markets.
But domestic demand is only part of the story. Significant increases in net exports to Mexico and burgeoning LNG overseas exports are projected to increase demand on US natural gas supplies by 16% (to around 95 bcf/day) between 2017 and 2021.
At that point, the U.S will be not only the largest producer of natural gas, but also the largest exporter of natural gas in the world.
While we have enjoyed historically low natural gas prices for the last 5 years, all indicators show greater upward pressure in future markets as demand is projected to increase across the board.
In our view, there is only one direction natural gas and electricity prices can go in the future and that is up. This is an historic opportunity to take advantage of current low prices to lock in long-term savings as well as eliminating market risk.
You should be discussing your long term buying strategies for natural gas and electricity with your broker or energy consultant.
Call us to talk about how our proprietary reverse auction system – The Energy ExchangeSM guaranties that you will see every price from every (viable) supplier in your utility. By definition, if you’ve seen all the prices available to you one of them must be the lowest price.