Huge natural gas stockpiles in the United States are set to push prices for the fuel to a near 50-year low, IHS Markit said on Thursday in a new report, with Henry Hub nat gas prices averaging $1.92 per million British thermal units in 2020.
The low prices are expected to come despite a robust export and domestic demand outlook, as more oil and gas pipelines come online to alleviate this constraint. Oil production is set to surge as a result the increased takeaway capacity, and natural gas will be produced as a byproduct of this extra oil production, IHS Markit said.
According to a Reuters survey of analysts regarding the future of next year’s US natural gas prices, IHS Markit’s forecast was the lowest.
“It is simply too much too fast,” IHS Markit’s executive director, Sam Andrus said, adding that this forecast did not mean the low prices would be here to stay. True, lower prices stifle new investments in exploration and drilling, but as demand eventually catches up with capacity, prices will rise again, and once again come into balance.
The next pipeline that is expected to come online, spurring on natural gas production, is Kinder Morgan’s $1.75 biillion Gulf Coast Express, which is due to come online next month. All in all, pipeline capacity out of the Permian is expected to increase by 6 billion cubic feet daily through 2022.
Hedge funds have long been calling the bottoming out of natural gas prices, and many have bet big that prices will fall. In August, hedge funds took their most bearish position in nat gas futures in a decade. Prices however, have gone up considerably since then—25%--according to the Wall Street Journal, to land at $2.58 earlier this week, up from $2.07 during the first week of August.
By Julianne Geiger for Oilprice.com
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