• 2 days Iraq Begins To Rebuild Largest Refinery
  • 2 days Canadian Producers Struggle To Find Transport Oil Cargo
  • 2 days Venezuela’s PDVSA Makes $539M Interest Payments On Bonds
  • 2 days China's CNPC Considers Taking Over South Pars Gas Field
  • 2 days BP To Invest $200 Million In Solar
  • 2 days Tesla Opens New Showroom In NYC
  • 3 days Petrobras CEO Hints At New Partner In Oil-Rich Campos Basin
  • 3 days Venezuela Sells Oil Refinery Stake To Cuba
  • 3 days Tesla Is “Headed For A Brick Wall”
  • 3 days Norwegian Pension Fund Set to Divest From Oil Sands and Coal Ventures
  • 3 days IEA: “2018 Might Not Be Quite So Happy For OPEC Producers”
  • 3 days Goldman Bullish On Oil Markets
  • 3 days OPEC Member Nigeria To Issue Africa’s First Sovereign Green Bond
  • 3 days Nigeria To Spend $1B Of Oil Money Fighting Boko Haram
  • 3 days Syria Aims To Begin Offshore Gas Exploration In 2019
  • 4 days Australian Watchdog Blocks BP Fuel Station Acquisition
  • 4 days Colombia Boosts Oil & Gas Investment
  • 4 days Environmentalists Rev Up Anti-Keystone XL Angst Amongst Landowners
  • 4 days Venezuelan Default Swap Bonds At 19.25 Cents On The Dollar
  • 4 days Aramco On The Hunt For IPO Global Coordinators
  • 4 days ADNOC Distribution Jumps 16% At Market Debut In UAE
  • 4 days India Feels the Pinch As Oil Prices Rise
  • 5 days Aramco Announces $40 Billion Investment Program
  • 5 days Top Insurer Axa To Exit Oil Sands
  • 5 days API Reports Huge Crude Draw
  • 5 days Venezuela “Can’t Even Write A Check For $21.5M Dollars.”
  • 5 days EIA Lowers 2018 Oil Demand Growth Estimates By 40,000 Bpd
  • 5 days Trump Set To Open Atlantic Coast To Oil, Gas Drilling
  • 5 days Norway’s Oil And Gas Investment To Drop For Fourth Consecutive Year
  • 6 days Saudis Plan To Hike Gasoline Prices By 80% In January
  • 6 days Exxon To Start Reporting On Climate Change Effect
  • 6 days US Geological Survey To Reevaluate Bakken Oil Reserves
  • 6 days Brazil Cuts Local Content Requirements to Attract Oil Investors
  • 6 days Forties Pipeline Could Remain Shuttered For Weeks
  • 6 days Desjardins Ends Energy Loan Moratorium
  • 6 days ADNOC Distribution IPO Valuation Could Be Lesson For Aramco
  • 6 days Russia May Turn To Cryptocurrencies For Oil Trade
  • 7 days Iraq-Iran Oil Swap Deal To Run For 1 Year
  • 9 days Venezuelan Crude Exports To U.S. Fall To 15-year Lows
  • 9 days Mexico Blames Brazil For Failing Auction

Breaking News:

Iraq Begins To Rebuild Largest Refinery

Alt Text

Russia Aims To Challenge Qatar LNG Dominance

Russia has launched a $27-billion…

Alt Text

'Perfect Storm' Wreaks Havoc On Europe’s Energy Market

The combination of several unexpected…

Oil Price Boom Keeps Lid On Natural Gas Prices

Natural Gas

In the previous post – Fear Will Drive Oil Prices In 2018 – I discussed the outlook for oil prices next year. In a nutshell, the price of oil will be influenced by crude oil inventories, which are going to be driven by the balance between OPEC’s actions and U.S. shale oil production.

Inventories also influence natural gas prices, but the drivers are different.

On the natural gas demand-side, growth remains robust. Pipeline exports to Mexico are surging, exports of liquefied natural gas (LNG) have reached 2 billion cubic feet/day (BCF/d), consumption in the chemical sector continues to grow, and utilities are shifting toward fast-cycling natural gas plants to complement increasing amounts of intermittent renewables on the grid.

Each of those drivers has added significantly to natural gas demand in recent years. However, natural gas production growth has kept pace.

The shale revolution actually started with natural gas production, which turned upward in about 2006. Oil production began to rise in 2009, but along with it came associated natural gas. Just as the surge of shale oil production contributed to the collapse of oil prices, the surge of natural gas production – both from dedicated natural gas drilling and from associated gas production – collapsed natural gas prices.

(Click to enlarge)

Over the past decade, oil production in the U.S. nearly doubled. Natural gas production rose by about 50 percent. But the collapse in oil prices that began in 2014 caused oil production to fall, and along with it the associated natural gas production (which is reflected in the slight decline in natural gas production above). Related: Chinese M&A Wave Could Be Bad News For Investors

Over the past few years, natural gas production growth has outpaced demand. This caused natural gas inventories to swell, which kept downward pressure on natural gas prices. A decade ago, natural gas prices were still regularly spiking above $10/million BTU (MMBtu). Over the past three years, high inventories have mostly kept prices below $3/MMBtu.

But the turndown in natural gas production over the past year has finally brought inventories down to a normal level:

(Click to enlarge)

The decline in inventories has taken some of the downside risks out of natural gas prices and helped stabilize the price at around $3/MMBtu. Inventories are slightly below normal for this time of year, but the price of natural gas over the next six months will be mostly dictated by the weather.

If we take the weather out of the equation, $3/MMBtu is likely to stimulate more drilling for natural gas. Higher oil prices will continue to spur U.S. oil production higher, and with that production comes more associated natural gas and natural gas liquids (NGLs).

As a result of the incremental associated gas supplies, it seems likely that unless the winter is unusually cold that natural gas supplies will at least keep up with demand. In that case, natural gas prices would probably remain in the $3/MMBtu range, with the potential to move lower if oil production continues to make gains.

By Robert Rapier

More Top Reads From Oilprice.com:




Back to homepage


Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News